SaaS Management
Erin Geiger, Director of Content at Lumos

How Does Software License Management Work?

Learn more about software license management and how Lumos can help you slash your SaaS spend.

Is your tech stack out of control? Odds are, it probably is. If your company is like many businesses, you probably have upwards of 130 applications in your tech stack…and that’s just the average for companies! SaaS management, when done right, doesn’t have to be a boring, difficult chore. In fact, your SaaS license management process can help you maintain compliance, maximize your investments, ensure your tech stack aligns with your operational needs, and even reduce the burden on your IT team. Sound too good to be true? With Lumos, it’s not. We like to think of our platform as the Gandalf of your SaaS journey, illuminating the path and giving you all the resources you need to optimize your software usage and slash your SaaS spend. So grab your walking stick, tuck an extra handkerchief in your pocket, and let’s get started on the road towards understanding software license management with Lumos in the lead. 

How Do Licenses Work for Software?

A licensed model for SaaS refers to a legal and technical framework used to manage the use of software distributed over the internet. Your software license agreement sets out the terms and conditions under which you are legally allowed to use the software. These agreements define user rights, software functionality, maintenance, compliance measures, and limitations of use.

A simple analogy for software licenses is to think about how library cards work. You sign up for a license, and then you can borrow and use the software’s functionality for as long as your license is valid. When dealing with licenses for SaaS products, it’s important to actively manage your subscriptions in order to maximize your investment. 

What Are the 9 Types of Software Licensing Models?

SaaS licensing models range from the familiar subscription-based to outcome-based and everything in between. Here’s a quick rundown of the common types of SaaS licensing models, each catering to different requirements and business models.

  • Subscription-based licensing is one of the most common models in the SaaS landscape. Customers pay a recurring fee, usually monthly or annually, to use the software. This model can be favorable for both vendors and users—it offers a predictable revenue stream for vendors and manageable payment terms for users. 
  • Freemium licensing allows users to access the basic features of the software at no cost. Users can then opt to pay for additional premium features. This model is particularly effective for encouraging new users to try a product without financial commitment and can lead to potential upgrades if users find value in the advanced features. 
  • Tiered pricing involves offering various price points, each including a different set of features. Tiers are often structured for different business sizes or levels of need, from basic to premium, allowing users the flexibility to choose a package that suits their needs. 
  • Pay-per-feature licensing, also known as “a la carte” licensing, gives users the flexibility to purchase specific features or modules. This is beneficial for users who need customized solutions, like additional reporting tools in project management software or payroll modules in accounting software. 
  • Enterprise licensing is designed for large organizations, often offering volume discounts, custom terms, and dedicated support. 
  • User-based licensing involves assigning licenses to individual users, each with a unique login. It’s suitable for software where personalization and individual user settings are important. It offers scalability for businesses to adjust the number of user licenses according to their current needs. 
  • Concurrent/floating user licensing is a flexible approach that allows a set number of users to access the software at any given time, rather than being assigned to specific users. This software license example is ideal for organizations with peak times of usage or when employees are sharing resources across multiple time zones. 
  • Usage-based licensing includes several different approaches:some text
    • Elastic access where users commit to a base level of usage but can scale up by purchasing additional capacity. 
    • Token licensing where customers buy tokens that can be redeemed for access to software features or additional usage capacity. 
    • Metered usage where charges are based on the actual usage of features or resources.
    • Consumption-based usage that typically involves predefined consumption metrics like data volume or computing resources.
  • Outcome-based licensing links licensing fees to the outcomes achieved through the use of the software. This type of license can align the interests of the vendor and the user, creating a partnership where they are both dedicated to achieving tangible results. 

What Are the Tasks of License Management?

Cutting your software spend involves identifying and eliminating waste—odds are, you’ve got quite a few licenses in your tech stack that aren’t being used or are being underutilized. Your SaaS license management strategy should include: 

  • Monitoring access and permissions for every software.
  • Regular auditing of active users and licenses. 
  • Minimizing unnecessary spending on software.
  • Developing policies and procedures for onboarding and offboarding.
  • Ensuring everyone who needs access has it—and everyone who doesn’t need it doesn’t have it.

What Is the License Management Process Flow With Lumos?

With Lumos, you’ll find a simple, streamlined license management process flow. You’ll have visibility into your entire tech stack with detailed analytics, user audits, and more. You can quickly identify redundant software and unused licenses. Best of all? You’ll have a single source of truth for software vendor management and a clear view into when your contracts are due for renegotiation. It’s time to use one of the best software license management tools. It’s time for Lumos. Curious how much you could save? Check out our SaaS Management ROI calculator to find out. Ready to get started? Book a demo to see how you can cut your software costs and reduce the burden on your IT team.