The SaaS license model has transformed how businesses access software. Businesses no longer have to rely on traditional, on-premises software.
This approach is the most cost-effective and scalable solution on the market. Companies can pay based on usage or seats, adapting as their needs change.
And the benefits are clear: effective SaaS license management helps companies monitor and adjust their licenses to fit evolving needs, plus maximising cost savings.
The transition towards this service-oriented approach began in the late 2000s and has led to a dynamic and evolving landscape of SaaS pricing practices.
This model is crucial in today’s landscape, aligning perfectly with remote work trends and digital transformation.
The SaaS (Software As A Service) licencing model has a bright future ahead of it, and it will surely be crucial in encouraging creativity and adaptability among licensees.
Kindly read “What is SaaS License Management and How It Can Save Your Money?” for fundamental insights.
Types of SaaS License Models
Pay-Per-Use Licensing Model
The pay-per-use model, also known as pay-as-you-go pricing, is the optimal flexible approach in which SaaS payments depend directly on the software’s usage metrics.
For businesses evaluating SaaS vs. license model options, pay-per-use licencing is the clear choice. It offers unparalleled cost savings by allowing users to pay only for what they consume.
This model is ideal for businesses with fluctuating needs. They only pay for what they use, which makes it particularly attractive.
There are different ways of measuring usage, including the number of nodes and private repositories, gigabytes of usage, and contacts.
This model requires a sophisticated monitoring infrastructure to measure real-time usage accurately, as outlined in the SaaS agreement.
KPMG asserts that tracking systems not only facilitate precise billing but also gather insights into usage trends, enabling companies to forecast demand more effectively.
This data-driven model is the ideal solution for SaaS providers targeting enterprises. It allows clients to manage costs flexibly while encouraging adoption among businesses that are wary of high initial expenses.
For reference on subscription, take a look at “What is a SaaS Subscription? How It Can Simplify Software Management.”
Tiered Licensing Model
The tiered licencing model empowers customers with the freedom to choose the price point that best suits their needs while offering a range of features and usage conditions to suit each tier.
This SaaS license model allows businesses to select the optimal tier for their budget and operational needs.
Andrey Saltan and Kari Smolander found tiered pricing is the most common pricing model among SaaS providers, accounting for 54% of the 220 companies surveyed. Its popularity undoubtedly stems from its flexibility and customer-centric approach.
Tiered pricing SaaS model relies on user-based and function-based metrics, allowing for a granular approach to packaging and pricing.
The model’s versatility is further demonstrated by the fact that 27% of companies adopt hybrid models, primarily based on tiered pricing, incorporating elements from other models to cater to specific customer segments.
Saltan and Smolander clearly state that this model is perfectly suited to different market segments and customer needs, enabling SaaS companies to cater to diverse customer profiles.
Technically, tiered licencing requires a modular software architecture. Each tier must operate independently yet remain scalable as customers upgrade or downgrade based on their changing needs.
KPMG asserts the necessity of precise engineering to maintain a seamless experience across tiers.
Meanwhile, to learn how SaaS management eliminates shadow IT, please refer to “What is SaaS Management? How Does It Kill Shadow IT & Save Budget?“
Flat-Rate Subscription Model
The shift from traditional software sales to online service delivery requires transparent and easily understandable pricing structures.
The fixed-rate model perfectly meets this need, simplifying for both providers and customers to manage their finances.
The flat-rate subscription model offers SaaS for a fixed price, charged either monthly or annually. This model is straightforward and provides businesses with cost predictability.
Its simplicity and predictable revenue stream make it the clear choice among SaaS providers.
Flat-rate pricing requires rigors system management to handle high-volume usage.
Without precise capacity planning, flat-rate models can lead to resource strain as customers often maximise their usage to extract full value.
Providers must ensure their infrastructure is robust enough to handle peak loads. They must also constantly monitor and optimise it to maintain seamless performance.
Slack primarily uses this model to achieve steady annual recurring revenue by maintaining infrastructure that can handle extensive customer engagement without added per-use fees.
If you want to know what shadow IT is all about, have a look at “Your Silent Budget Killer: How to Stop the Leaks of SaaS License Waste.”
Freemium Mode License Paid Upgrades
The freemium model with paid upgrades is a popular SaaS license model. Period. Because users can access a basic version of the software for free, with the option to upgrade to a paid version for more features and functionality.
This model is the most effective way to attract a large user base. You can monetize it through paid upgrades, advertising, or supplementary services.
The freemium model requires a robust infrastructure capable of supporting many free users, many of whom may not upgrade.
The freemium model demands a robust infrastructure capable of supporting many free users, many of whom may not upgrade. As a more popular software licencing model, it is highly effective in attracting a broad user base.
But please note that managing such a user base requires carefully balancing server resources and optimising system performance.
This is essential to ensure that the cost of supporting non-paying users does not outweigh potential revenue gains.
Data analytics are essential for this model. They enable providers to track user behaviour and identify the optimal point for presenting upgrade options.
Dropbox is a good example of this model. They offer free storage while charging for advanced features like increased storage capacity.
User-Based (Per-Seat) Licensing Model
The user-based (per-seat) licencing model is the most straightforward approach. It determines the cost of using SaaS by the number of users or accounts.
This model allows companies to scale costs with their workforce, making it both predictable and manageable as teams expand or contract.
To implement a per-seat model, you need robust access control and identity management systems to track and manage each licensed user.
These systems must securely authenticate and isolate user data, especially as organisations add or remove seats.
Furthermore, SaaS providers frequently integrate their licencing systems with enterprise identity management solutions, enabling administrators to manage access effortlessly as employee roles evolve.
However, this pricing model often fails to align with the actual value a customer receives from the software. Given that everyone has essentially the same experience, this is an issue that needs to be addressed.
Hybrid Licensing Model
The hybrid licencing model is the optimal solution for your SaaS licencing needs. This SaaS license model blends aspects of different models to create a customised approach that caters to specific customer needs and preferences.
This flexibility allows businesses to tailor their licencing structure to maximise revenue generation and customer satisfaction.
This hybrid SaaS is an arrangement where customers get both on-premises software and access to cloud-based features.
This model gives customers control over their data and software while providing the benefits of cloud-based functionality.
Hybrid licencing requires a sophisticated billing infrastructure to manage multiple pricing structures within a single subscription.
This requires advanced systems that accurately track fixed and variable costs and can dynamically adjust invoices based on real-time usage.
Providers rely on integrated analytics to optimise and forecast demand across these various pricing structures.
Microsoft’s Azure, for instance, applies a base subscription cost combined with usage-based charges for specific resources like additional computing or storage.
A thorough analysis is essential to ascertain whether the on-premises and SaaS elements are distinct or constitute a combined performance obligation for accounting purposes.
For the best comparison of the products on the market, please refer to “A Review & Comparison to 2025 SaaS License Management Software.”
Benefits of Selecting the Right SaaS License Model
The right SaaS license model is essential for driving revenue growth, customer retention, and operational efficiency.
The reality is that different licencing models are suited to different companies. But at the same time, we all want our businesses to thrive, right?
For instance, pay-per-use licencing is ideal for businesses that require flexible, cost-efficient solutions.
Meanwhile, tiered models are the best choice for companies with varying organisational scales and budget structures.
But with all these options, things can get confusing fast! That’s why Octobits can be your best choice.
Our SaaS management platform provides a comprehensive view of all your software, licenses, spending, and other expenses in one place.
Octobits is the SaaS license management command centre for your software. It shows you everything you need to know in a simple dashboard.
We will even help you analyse your business to figure out which licencing model will work best for you. No more guesswork, just smart decisions that help your business grow.
In Closing
The right model allows companies to align software expenses with actual needs, offering unparalleled flexibility to scale as they grow and adapt to industry changes.
Octobits simplify this decision-making process. Our centralised platform allows companies to manage, analyse, and optimise their software licenses seamlessly.
Octobits provides the insights and analytics businesses need to choose the most advantageous SaaS license model and thrive in a dynamic and evolving digital landscape.
