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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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In the SaaS world, how you price and license your product can make or break your business model. For open core software companies—those offering a free, open-source version alongside premium paid features—the licensing question becomes even more complex. While subscription models have dominated recent years, perpetual licensing remains a viable option that some customers still prefer. But is offering a perpetual license the right move for your open core product?
What Are Perpetual Licenses in Open Core Software?
A perpetual license grants customers the right to use a specific version of your software indefinitely for a one-time payment. Unlike subscription models that require ongoing payments for continued access, perpetual licenses allow customers to "own" their version of the software.
For open core companies, perpetual licensing typically applies to the premium features that extend beyond the free open source version. This creates an interesting dynamic where the core remains freely available, while extended functionality is offered through either subscription or perpetual licensing models.
The Case For Perpetual Licensing
Budget Certainty for Customers
Many enterprise customers, particularly in regulated industries or government sectors, appreciate the predictability of a one-time payment. According to a 2022 Flexera report, 47% of enterprise software buyers cite budget predictability as a major factor in license model selection.
"Our enterprise clients frequently request perpetual licensing options because they've been burned by subscription cost increases in the past," explains Maria Chen, VP of Sales at infrastructure software company Stackwave. "They want to lock in costs, especially for mission-critical systems."
Higher Initial Revenue
Perpetual licenses typically command significantly higher upfront payments compared to monthly or annual subscriptions. This front-loaded revenue can be particularly valuable for:
- Bootstrapped companies needing immediate cash flow
- Startups looking to demonstrate revenue traction to investors
- Businesses facing temporary financial pressures
Customer Preference in Certain Markets
Some industries and regions still show strong preference for perpetual license models. According to a 2023 Gartner survey, 38% of enterprise software customers in manufacturing, healthcare, and financial services prefer perpetual licensing options for on-premises deployments.
The Case Against Perpetual Licensing
The Revenue Ceiling Problem
The most significant drawback of perpetual licensing is the revenue ceiling it creates. Once a customer purchases a perpetual license, your revenue from that customer essentially stops until they need an upgrade or additional features.
"We shifted away from perpetual licenses because we were constantly having to convince existing customers to upgrade," notes David Jackson, CEO of developer tools company CodeSphere. "With subscriptions, we can focus on continuously delivering value rather than creating artificial upgrade cycles."
Maintenance and Support Challenges
While the software license may be perpetual, the cost of supporting that software is ongoing for your company. This creates a fundamental business model challenge:
- Customers expect some level of support and updates with their perpetual purchase
- Supporting multiple versions becomes increasingly expensive
- The revenue from the initial sale doesn't cover long-term support costs
Most companies address this by selling separate maintenance agreements, but this creates additional sales friction and often results in customers running unsupported versions.
Misalignment with Cloud-Based Delivery
If your open core software includes cloud-hosted components or services, perpetual licensing creates a logical disconnect. The ongoing costs of cloud infrastructure don't align well with one-time payment models.
Hybrid Approaches: Finding Middle Ground
Many successful open core companies have found that offering flexible licensing options provides the best of both worlds:
Time-Limited Perpetual Licenses
Some companies offer "perpetual" licenses that grant usage rights for extended but finite periods (e.g., 5-10 years). This provides customers with longer-term predictability while still allowing the vendor to eventually generate renewal revenue.
Perpetual + Maintenance Model
Under this approach, customers purchase a perpetual license for a specific version but must maintain an active maintenance agreement to receive updates and support. Atlassian used this model effectively for years with their on-premises products before transitioning to subscription pricing.
Feature-Specific Perpetual Rights
Another approach is to offer perpetual rights to current features while requiring subscriptions for new features or capabilities. This can satisfy customers who want ownership while preserving ongoing revenue potential.
Making Your Decision: Key Considerations
When deciding whether to offer perpetual licenses for your open core software, consider these factors:
1. Customer Expectations and Market Norms
What do your target customers expect? Enterprise software has a longer history with perpetual licensing, while consumer and SMB software has more readily embraced subscriptions.
2. Cash Flow Requirements
If your business needs immediate revenue, perpetual licenses can provide larger upfront payments. However, this comes at the cost of long-term recurring revenue.
3. Product Update Frequency
Products that require frequent updates to maintain value align better with subscription models. If your software provides substantial value even without regular updates, perpetual licensing becomes more viable.
4. Competitive Landscape
What licensing models do your competitors offer? Sometimes providing options your competitors don't can be a competitive advantage.
Implementing Perpetual Licenses Successfully
If you decide perpetual licensing makes sense for your open core product, consider these implementation best practices:
Clear Version Boundaries
Be explicit about what version(s) the perpetual license covers and what happens when new major versions are released.
Transparent Maintenance Terms
Clearly define what ongoing support, if any, is included with the perpetual license and how maintenance agreements work.
Pricing Strategy
Perpetual licenses should be priced significantly higher than annual subscriptions to account for the lifetime value of the customer. Many companies set perpetual prices at 3-5 times the annual subscription rate.
The Future of Perpetual Licensing in Open Core
While subscription vs. perpetual licensing is often portrayed as an either/or decision, the reality for many successful open core companies is more nuanced. Companies like HashiCorp, GitLab, and Elastic have shown that offering licensing flexibility can be a competitive advantage in certain market segments.
"We found that offering both subscription and perpetual options actually shortened our sales cycles," explains Robin Santos, CMO at database company DataDome. "Enterprises appreciated having choices that aligned with their procurement preferences, while we could still guide most customers toward our preferred subscription model."
Conclusion: Choice as a Competitive Advantage
The decision to offer perpetual licenses for your open core software ultimately depends on your specific business needs, customer preferences, and market dynamics. Rather than viewing license models as mutually exclusive, consider whether providing options might create a strategic advantage.
For many open core companies, the answer isn't "subscription or perpetual" but rather determining how to effectively offer both models while steering customers toward the option that creates the most sustainable long-term relationship. By understanding the trade-offs and implementing thoughtful licensing policies, you can build a pricing strategy that satisfies customer preferences while supporting your business objectives.
What license models are you currently using for your open core software? Have you considered offering both subscription and perpetual options?