What Is a Software Licence? Types, Models, and Examples

A software licence is a legal agreement that defines how you're permitted to use a piece of software. The terms of that licence — how many users can access it, where it can be installed, what you can do with the output — directly affect both your costs and your compliance obligations.

Perpetual Licences

A perpetual licence grants you the right to use a specific version of software indefinitely, in exchange for a one-time payment. Historically common for on-premise software, perpetual licences are increasingly rare in the SaaS era. The main advantage is predictable long-term cost; the disadvantage is that you're responsible for maintenance and may need to pay separately for major version upgrades.

Subscription Licences

Subscription licences grant access to software for a defined period — typically monthly or annually — in exchange for recurring payments. SaaS products are almost exclusively subscription-based. The ongoing payment model funds continuous product development and transfers infrastructure responsibility to the vendor.

Per-Seat Licences

Per-seat (or named-user) licensing charges a fixed price for each individual user who has access to the software. This is the most common model for business SaaS. The key optimisation opportunity is ensuring that every paid seat is assigned to an active user.

Concurrent Licences

Concurrent licensing charges based on the maximum number of users accessing the software simultaneously, rather than the total number of named users. This model suits tools used intermittently by a large user population and can be more cost-effective when utilisation patterns are predictable.

Usage-Based Licences

Usage-based licensing charges for actual consumption rather than seats or simultaneous users. The billing unit varies by product: API calls for developer tools, rows processed for data platforms, documents generated for AI tools, or active minutes for communication platforms. Usage-based models offer strong alignment between cost and value when usage is variable, but can produce unpredictable invoices when consumption spikes unexpectedly. Always set up spend alerts on usage-based products to avoid bill shock.

Capacity-Based and Metered Licences

Capacity-based licences charge for a defined amount of storage, compute, or data processing capacity — whether or not it's fully used. Database platforms, data warehouse tools, and some collaboration platforms use this model. The key management consideration is ensuring you're purchasing capacity close to your actual needs, with enough headroom for growth, rather than significantly over-provisioning "just in case." Review capacity utilisation quarterly and resize as needed.

Licence Compliance Obligations

Every licence type carries compliance obligations that are easy to overlook until a vendor audit makes them unavoidable. Per-seat licences require that access is only granted to named users covered by the purchased seat count. Concurrent licences require that the maximum simultaneous user limit is never exceeded. Perpetual licences specify which versions you're entitled to use. Understanding and tracking these obligations for every significant software contract is the foundation of licence compliance — and the audit trail needed to demonstrate compliance if a vendor questions your usage.