What is a perpetual license? Meaning and differences

What is a perpetual license?

A perpetual license is a type of software license that grants the user the right to use a specific version of a software product indefinitely, without any expiration date. Unlike subscription-based models (where users pay periodically to continue access), a perpetual license typically involves a one-time payment for the software.

Read on to learn:

• Key features of a perpetual license
• How these licenses work
• Differences between perpetual licenses and subscription-based models
• Crucial factors and strategies for pricing a perpetual software license
• Considerations for managing revenue and billing when using a perpetual license model
• Key steps in transitioning from a perpetual license to a subscription model

Before the rise of subscription-based pricing models became common, perpetual licenses were the standard in the software industry, much like purchasing any other product outright.

Key features of a perpetual license

• One-time fee: You pay once and own the rights to use the software forever.
• No expiration: Unlike subscription models, it doesn’t expire or require renewal.
• Limited Updates: You usually don’t get major version upgrades for free. Those might require an additional purchase or an annual maintenance plan.
• Offline use: Perpetual licenses often allow offline installation and use, without requiring continuous internet access.
• Software ownership: The user "owns" the software, unlike a subscription where they are renting access. 
• No ongoing costs: There are typically no recurring maintenance or support fees beyond the initial purchase, unless explicitly stated in the license agreement. 

Here are some examples of perpetual software licensing:

1. Microsoft Office 2021: A good example of a perpetual software license is Microsoft Office 2021. If you buy it under a perpetual license, you can use that version forever. However, you won’t get access to Office 2024 unless you purchase it separately.
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2. Adobe Photoshop CS6: Before Adobe switched to a subscription model, you could buy Photoshop CS6 with a perpetual license. You paid once and owned that version forever—but you wouldn’t get new features or upgrades like in later Creative Cloud versions.
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3. AutoCAD 2016: If a company purchased AutoCAD 2016 under a perpetual license, they could use it indefinitely without paying again. But to access AutoCAD 2020 or newer features, they’d need to buy a new license or switch to a subscription plan.

How do perpetual licenses work?

Here’s how a perpetual license typically works:

1. One-time purchase

• You pay a single, upfront fee to own the license (unlike subscriptions, which require recurring payments).
• Example: Buying Microsoft Office 2019 outright instead of paying monthly for Microsoft 365.

2. Version-locked usage

• The license applies to a specific version of the software (e.g., Photoshop CS6).
• You can use it forever, but you won’t automatically get major updates unless you buy a new version.

3. Optional maintenance & support (often paid)

• Some vendors offer 1 year of free updates & support, but after that, you may need to pay for:
  
  • Technical support (e.g., Autodesk charges for extended support).
  • Minor updates (bug fixes, security patches).
• Major upgrades (e.g., moving from Windows 10 to Windows 11) usually require a new license.

4. No deactivation (unless violating terms)

• The software remains usable even if the vendor stops selling it (e.g., Adobe stopped selling perpetual licenses for Creative Suite after moving to a subscription model).
• However, some vendors use activation servers—if they shut down, reinstalling could become difficult.

5. Transferability (sometimes)

• Some perpetual licenses allow transferring to another user or device (check the EULA).
• Enterprise licenses may allow installation on multiple machines.

6. Common in industries needing stability

• Used in engineering (CAD), gaming (offline games), and legacy systems where companies avoid frequent upgrades.
• Example: AutoCAD 2024 Perpetual License vs. AutoCAD Subscription.

Note: Understanding perpetual licenses is a key element when developing your SaaS company's pricing and packaging strategies. It informs decisions about software monetization and can be a component of a hybrid pricing approach, where you offer both perpetual licenses and subscription options. 

Perpetual license vs. subscription: Key differences 

The main difference between perpetual licenses and subscriptions is the ownership model and payment structure. A perpetual license involves a one-time, upfront payment that grants indefinite usage rights to a specific software version, while a subscription requires recurring payments (monthly or annually) for continued access to software that typically includes all updates and new versions during the subscription period.

Beyond this fundamental distinction, these models differ in several key ways:

Initial cost and long-term expense:

• 🔑 Perpetual licenses have higher upfront costs but potentially lower total expenses over many years
• 🔄 Subscriptions feature lower initial costs but continuous payments that may exceed perpetual license costs over time

Updates and versions:

• 🔑 Perpetual licenses typically provide access to the specific version purchased, with additional costs for major upgrades
• 🔄 Subscriptions generally include all updates and version upgrades as part of the ongoing fee

Support and maintenance:

• 🔑 Perpetual licenses often include limited-duration support (typically 1 year), after which maintenance plans must be purchased separately
• 🔄 Subscriptions usually include ongoing technical support and maintenance throughout the subscription period

Accounting treatment:

• 🔑 Perpetual licenses are generally treated as capital expenditures (CapEx)
• 🔄 Subscriptions are typically categorized as operational expenditures (OpEx)

Feature access:

• 🔑 Perpetual licenses provide stable feature sets that don't change unless upgraded
• 🔄 Subscriptions offer continuous access to the latest features and improvements

Deployment flexibility:

• 🔑 Perpetual licenses often have more rigid deployment options tied to specific devices
• 🔄 Subscriptions typically offer greater flexibility with cloud access, multiple device installations, and easier license reassignment

Obsolescence risk:

• 🔑 Perpetual licenses can become technically obsolete without maintenance plans
• 🔄 Subscriptions automatically provide compatibility updates to maintain functionality with evolving operating systems and technologies

Comparison Table: Perpetual licenses vs. subscriptions

Pros and cons of perpetual software licenses

The most notable benefit of perpetual software licenses is the long-term cost efficiency for customers who plan to use the software over an extended period. However, the most significant drawback is the lower recurring revenue for providers.

Here are some pros and cons of perpetual software licenses:

Pros

1. Upfront revenue: Vendors benefit from a larger initial payment, which can provide financial stability.
2. Upsell opportunities: There's potential to generate additional revenue through maintenance contracts, support packages, and upgrades.
3. Competitive differentiation: Offering a perpetual license can attract customers who prefer a one-time purchase model.
4. Long-term cost efficiency for customers: For customers planning long-term use, a perpetual license can be more cost-effective over time.
5. Sense of ownership and control: Customers often appreciate the feeling of owning the software and having more control over when to upgrade.

Cons

1. Lower recurring revenue: Vendors miss out on the predictable and consistent revenue stream that subscriptions offer.
2. Challenges in building customer relationships: The transactional nature can make it harder to maintain ongoing engagement with customers.
3. Difficulty in gathering usage data: Without an ongoing connection, understanding how customers use the software can be challenging.
4. Higher upfront cost for customers: The significant initial investment can be a barrier for some potential customers.
5. Risk of outdated software: Customers without a maintenance agreement may not receive crucial updates and security patches

Perpetual license vs. annual subscription: What’s the difference?

The main difference between a perpetual license and an annual subscription comes down to ownership and how you pay.

With a perpetual license, you make a one-time payment and own the rights to use that specific version of the software forever. You’re not paying again next year, but you also won’t get new features or future versions unless you pay separately for them.

Think of it like buying a DVD — you keep it for life, but don’t expect free access to the sequel.

In contrast, an annual subscription gives you access to the software for one year. After that, you have to renew it to keep using it. You don’t own anything — it’s more like renting. But the upside is you always have access to the latest version, all updates, and often priority support as long as your subscription is active.

Cost-wise, perpetual licenses have a higher upfront cost, but no recurring fees. Over 3–5 years, this can be cheaper if you’re okay sticking with the same version. Subscriptions spread the cost over time, which feels more affordable short-term but can get expensive if you keep renewing year after year.

There’s also a difference in how companies handle them:

• Perpetual licenses are treated as capital expenses (CapEx) — it’s a long-term asset.
• Subscriptions are considered operational expenses (OpEx) — they hit the budget every year.

Support and updates differ too. Most perpetual licenses come with limited support, often just for the first year. After that, support and updates usually cost extra via a maintenance plan. Annual subscriptions usually include both for as long as you're paying.

Flexibility is another factor. Subscriptions tend to be more flexible — allowing cloud access, multi-device use, and easier license transfers. Perpetual licenses are often locked to a machine, especially in enterprise setups.

When to choose which:

• Perpetual License is better for companies that want long-term control over the software and don’t need constant updates.
• Annual Subscription works best for teams that want the latest features, regular updates, and more deployment flexibility without a large upfront cost.

Some SaaS companies offer hybrid models, letting customers choose based on preference. For example, you might sell a perpetual license for core functionality and offer subscriptions for cloud-based add-ons, support, or advanced features.

Ultimately, the right model depends on your product, your customer base, and your long-term monetization strategy.

How to price a perpetual software license

A good way to price a perpetual software license is to align the upfront fee with development costs, market positioning, and competitor pricing, while adding maintenance and upgrade fees to drive continued value. Easier said than done. 

Pricing a perpetual license requires careful consideration of several factors. Let’s look at what those are:

Factors influencing pricing

• Development costs: The resources invested in developing the software are a primary driver of its price. A higher development cost often translates to a higher upfront fee for the perpetual license.
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• Market positioning: How you want your software to be perceived in the market influences pricing. A premium positioning might justify a higher perpetual license cost.
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• Competition: Analyzing the pricing of competitors offering similar software with perpetual licenses is essential to remain competitive.

Pricing considerations

• Upfront fee: This is the core of the perpetual license model. It needs to be high enough to cover costs and generate profit but not so high that it deters potential customers.
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• Annual maintenance fees: Many vendors offer optional or mandatory annual fees for maintenance, support, and sometimes minor updates. This provides a recurring revenue stream after the initial perpetual license sale.
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• Upgrades: Major version upgrades are often sold as new perpetual licenses or at a discounted upgrade price for existing perpetual license holders with a maintenance agreement.

Managing revenue and billing for perpetual licenses

The primary revenue from a perpetual license is recognized at the time of the sale. This contrasts with the recurring revenue of subscription models. While the initial revenue can be substantial, it can also lead to revenue fluctuations if new perpetual license sales are inconsistent.

Complexities of ongoing revenue streams

Ongoing revenue with perpetual licenses typically comes from maintenance contracts, support agreements, and the sale of upgrades. Managing these separate revenue streams can add complexities to billing and revenue tracking. 

Effective management requires systems to track which customers have active maintenance, when it expires, and who is eligible for upgrade discounts.  

Platforms for hybrid models

Platforms like Orb can help simplify revenue tracking, usage monitoring, and billing, especially for SaaS companies that offer a hybrid model involving both perpetual licenses and usage-based add-ons or services. These platforms can manage the initial one-time payment for the perpetual license alongside any recurring fees for support or usage-based billing for additional features or services.

How to transition from perpetual to subscription licenses

Moving from a perpetual license model to a subscription-based one is a significant shift that requires careful planning and execution. Knowing when to consider this transition is the first step. Here are key steps to consider when transitioning your pricing model:

1. Communicate clearly with existing customers: Be transparent about the upcoming changes and explain the benefits of the subscription model. Address their concerns about the shift from a perpetual license.
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2. Offer grandfathering options: Consider allowing existing perpetual license holders to remain on their current plan or offer them special migration paths and incentives to switch to a subscription.
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3. Analyze revenue impacts: Understand the short-term and long-term effects on your revenue. While initial revenue from subscriptions might be lower, the goal is to build a stable and growing recurring revenue stream over time.
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4. Adjust your sales and marketing strategies: Train your sales team to sell the value of subscriptions, focusing on continuous updates, support, and flexibility. Update your marketing materials to reflect the new model.
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5. Update your billing and infrastructure: Implement a robust billing system that can handle recurring payments, subscription tiers, and usage-based billing if applicable.
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6. Focus on customer retention: Subscription models thrive on customer retention. Invest in customer success to ensure users see ongoing value and continue their subscriptions.
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7. Iterate and adapt: Monitor the transition closely, gather feedback from customers, and be prepared to make adjustments to your plans and processes as needed.

8 Best practices for software monetization with perpetual licenses

Even if you primarily use a subscription model, or if you continue to offer perpetual licenses for specific products or customer segments, effective monetization strategies are key. Here are some best practices for software monetization with perpetual licenses:

• Clearly define licensing terms upfront: Ensure your end-user license agreement (EULA) clearly outlines usage rights, restrictions, and what the one-time fee covers.
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• Offer optional, value-added services: Create revenue opportunities beyond the initial perpetual license by offering paid support contracts, maintenance agreements for updates and patches, and training services.
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• Provide flexible add-ons and integrations: Offer paid add-on features or integrations with other software or cloud services to increase the value of the perpetual license and generate additional income.
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• Consider hybrid monetization strategies: Explore combining the perpetual license with usage-based fees for certain features or consumption-based services to tap into recurring revenue streams.
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• Implement version upgrade paths: When releasing new major versions, offer upgrade paths for existing perpetual license holders, potentially at a discounted price, to incentivize adoption of the latest features.
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• Automate revenue tracking and recognition: Use modern billing and revenue recognition systems to accurately track perpetual license sales and any associated recurring revenues from maintenance or add-ons.
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• Regularly communicate value to customers: Even with a perpetual license, keep customers informed about new features, updates (if they have a maintenance agreement), and other relevant information to foster goodwill and potential future sales.
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• Protect your intellectual property: Implement strong licensing enforcement mechanisms to prevent misuse and guarantee compliance with the perpetual license terms.

Update your perpetual software licensing with Orb

We've just explored the ins and outs of perpetual software licenses. Now, let's introduce you to Orb, a done-for-you billing platform designed to help SaaS companies with flexible pricing, frictionless billing, and faster growth by unlocking your usage data.

Even within a perpetual licensing model, opportunities exist for dynamic pricing, usage-based add-ons, and evolving service offerings. Orb provides the agility and precision needed to manage these aspects effectively. Here’s how Orb can help you optimize your approach to perpetual licenses and beyond:

• Price smarter for what's next: While the core of a perpetual license is a one-time payment, Orb lets you play with pricing for those crucial follow-up services – think maintenance tiers, support packages, or extra features. Tweak and test these strategies and even preview the impact with Orb Simulations.
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• Bill hybrid with confidence: If you're mixing perpetual licenses with services based on usage or specific feature usage, Orb delivers billing that's spot-on. Orb RevGraph crunches the raw data to generate crystal-clear invoices for those variable bits, keeping trust high with your customers through transparent usage insights.
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• Manage ongoing value: Keeping track of revenue from perpetual licenses plus things like renewals or add-on purchases can get messy. Orb’s adaptable API and modular setup give you a clear view of all your customer revenue, integrating with your existing financial tools. Plus, built-in analytics help you see how those extra services are doing.
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• Your guide to what's next in monetization: Whether you're all-in on perpetual licenses or dipping your toes into hybrid approaches, Orb offers more than just a platform — we're your partner. Get dedicated support to set up your billing, and tap into our expertise on making money effectively.
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• Unlock customer insights: Even with a perpetual license, knowing how customers use your software and any extra services is gold. Orb gives you the data on those add-ons and consumption-based features, helping you make your service offerings even better, keep customers happy, and spot chances to offer more value.

Ready to bring precision to how you manage and grow revenue with perpetual licenses? Explore our flexible pricing options and discover how Orb can be the foundation for your evolving monetization strategy.