L I C E N S I N G
Consumption-Based Licenses
It is a story many of us have experienced in some form or another : In my college dorm , we did not have laundry . Instead , there was a laundromat on campus where all students could go to get their laundry done for a sum that even the poorer ones of us could afford . When one of those big washing machines broke down , it would be replaced . Would it have made financial sense for me to buy my own machine in that case ? Most likely not . Would it have paid off to pay for a laundry service to do my laundry whenever I needed it , for some form of monthly payment ? It might have , but then there were the months that I did not spend on campus . In the end , I was actually quite happy that I did not have to worry about moving a big old washing machine from my dorm room up on five flights of stairs .
It is the same story with software . How much is software worth ? Does it make financial sense for us to buy a certain application ? There are no blanket answers to these questions . The same software is not worth as much to one user as it is to another . It depends on the particular situation and how well the software on offer fits the actual use case . How often do I need to use it ? Are there alternatives ? Even the best software in the world is not right for me if I cannot afford it .
All of this makes pricing policy a crucial decision for vendors . Too high a price , and nobody will buy the product . Too low , and you lose money with every sale . A true win-win outcome can only come about if the needs of the customer and the needs of the vendor are balanced .
Licenses make pricing flexible : Prices can be adjusted to fit the needs of customers , and bespoke solutions can be tailored to attract any type of target group .
One way of approaching this concept is Consumption-Based Licensing , or CBL for short . This article will look at CBL , how it differs from other models , and its benefits and risks . It will also explain who CBL is a good choice for and how easy it is to sell software with custom CBL models .
What are Consumption-Based Licenses ?
Consumption-Based Licenses are what is called a recurring-revenue model . Colloquially , they are also known as pay-as-you-go licenses . They are based on consumption in the sense that the users only pay for what they actually use .
Everybody knows the concept from e . g ., paying for gas : Nobody wants to pay more at the pump than they got . Prepaid cellphone contracts are another type of consumption-based pricing : The customer gets a certain data contingent on usage and can increase it when needed . CBL
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