What are software entitlements? An easy guide

Alvaro Morales

Ever wonder how to manage which customers have access to different features of your software product without constantly double-checking? 

Or even worse, what if you’ve introduced new features and your pricing tiers need a complete revamp? 

The answer lies in a robust software entitlements management strategy. 

In this article, we’ll discuss why and how software entitlements are so important to the health of your company’s revenue and how they can prevent you from straining your customer relationships when managed properly. 

We’ll go over:

  • What software entitlements are
  • How software entitlements work
  • Key benefits of managing them correctly
  • Pitfalls you should avoid when managing software entitlements 
  • A quick list of tips to manage software entitlements effectively

Let’s jump right into it. 

What are software entitlements?

Software entitlements are the rights and permissions a customer has within their chosen software plan. 

Think of it like a membership: Different membership levels at a gym might give you access to certain equipment or exclusive classes. In software, entitlements give you access to specific features, support levels, data storage, or other benefits.

Here's why entitlements are important:

  • They make upgrades easy: If you decide you need more features in your product, a good entitlement system lets you upgrade your plans smoothly. 
  • They keep your customers happy: Entitlements allow tailoring a product's features toward specific needs, making people feel like the software is designed for them.
  • They help your business grow: Entitlements let you create different pricing plans and packages. They're a powerful tool for attracting new customers by offering "starter" plans and incentivizing upgrades to unlock even more features for power users.

Let's break it down even further:

Say you offer project management software. Here's how entitlements would work:

  • Basic plan: This plan includes core tasks, boards, and limited collaboration (e.g., only 5 team members).
  • Pro plan: Unlocks reporting, integrations with other tools, and supports up to 20 team members.
  • Enterprise plan: Adds custom workflows, unlimited team members, and premium customer support.

A well-designed entitlement system automatically gives each customer the right access based on their plan. This way, everyone pays for only what they need, and your product becomes even more valuable to them as they grow their own businesses.

What are the components of software entitlements?

We know software entitlements give customers access to certain features or benefits within their plan. But what exactly determines those access rights? Let's break down the key components:

1. License type

This is the foundation of any software license entitlement. Here are some common types and how they affect what customers get:

  • Perpetual licenses: This is the standard model. Customers pay a larger upfront fee and own the right to use the software forever. Entitlements here usually focus on the specific version they bought and whether they’re eligible for major updates or just bug fixes.
  • Subscription licenses: Users pay regular fees (monthly, annually) and can use the software as long as they keep paying. Entitlements here often change over time; maybe a new feature gets added to a subscription tier, and they automatically get access.
  • Volume licenses: Ideal for enterprises that need many copies of the same software. Instead of buying individual licenses, they might buy a bundle at a discount. Entitlements focus on tracking how many installations they’re allowed versus how many you're actually using.

2. Usage rights

This component of software entitlements goes deeper into what users are actually allowed to do with the software:

  • Number of installations: Can it be used on just one computer, multiple computers within the customer’s office, or across remote employees' machines? Entitlements track this.
  • Specific features: Especially in subscription models, your customers’ plans might only unlock certain tools or functionality within your software product.
  • Access to updates and support: Do users get ongoing access to bug fixes and new minor versions? What about major new releases, and who can you contact for help if you run into trouble? These are defined by entitlements.

3. Restrictions 

Entitlements aren't just about what your customers get; they can also include limitations:

  • Geographical limitations: Sometimes, software licenses are only valid for use in specific countries or regions. This might be due to legal regulations or varying regional pricing.
  • Production vs. non-production: Many development tools offer different licenses (and prices) for using the software to build things versus using it in a "live" environment serving customers.
  • Type of business activity: Some software products might be licensed only to nonprofits, educational institutions, or specific industries.

How do software entitlements work?

Now that we’ve explained what entitlements are, let's see how they function in practice. This involves three key aspects:

1. Issuance: How entitlements get into the hands of your customers

  • Licensing keys: A common method, especially with perpetual licenses. The customer gets a unique code they enter during software installation, which "unlocks" the agreed-upon features and confirms the right to use the software.
  • Digital certificates: These are used for higher security or in more complex deployments, especially in enterprise scenarios. They act as a digital "fingerprint" tied to the customer's organization or specific devices.
  • Subscriptions: With online subscription models, customer entitlements are often tied directly to their account and managed behind the scenes by your billing system and user database.

2. Management: Keeping everything organized

If things were much simpler, you would just hand out license keys and call it a day. But what about upgrades, downgrades, or customers changing their usage patterns? This is where entitlement management systems come in:

  • Centralized hub: Instead of entitlements scattered across spreadsheets or individual records, these systems act as a single source of truth. They store what each customer is entitled to, for how long, and any changes over time.
  • Tracking and enforcement: This is the core function. Entitlement software systems know if a customer is trying to use a feature they aren't entitled to or exceeding usage limits (like API calls in a metered system).
  • Integration with billing: A good entitlement system knows your customer's subscription status and can automatically grant or revoke access. This keeps everything consistent.

3. Compliance: Playing by the rules

Software licenses are legal contracts, and entitlements are the fine print. Here's why staying compliant matters:

  • Avoiding fines or lawsuits: Using software outside of entitlement terms, whether intentionally or not, can lead to penalties or even restrictions on the user’s ability to use it.
  • Build trust: Customers will do business with you only if they believe you'll respect the terms of the sale. A reliable entitlement system helps nurture that trust.
  • Easier audits: If questions about usage or compliance arise, a well-managed system makes it simple to prove you're following the rules.

Keep in mind that how an entitlement system actually enforces access depends on your software product. Common methods include:

  • Feature flags within the code: Entitlements checked during runtime control the ability to turn features on/off.
  • Calls to an authorization server: Each time a user requests a feature, the software "asks" a central server for permission based on entitlements.
  • Hard limits for metered usage: Once a user hits their limit (e.g., only 500 API requests/month), features relying on that usage become unavailable until the next billing period.

What are the benefits of managing entitlements effectively?

A well-designed software entitlement system should be a win-win for both software companies (the vendors) and the people using their products (the users). Let’s start by looking at the benefits it brings for you, the vendor:

  • Protecting your intellectual property: Controlling who can use your software and how they're allowed to use it helps prevent misuse and piracy. This is important to protect all the hard work and monetary investment you've made in development.
  • Maximizing revenue: Entitlements let you create different pricing tiers to attract a wider range of customers. It also makes upgrades direct, encouraging customers to move to higher-value plans as their needs grow.
  • Reducing piracy: Clear entitlements (and strong enforcement) make it harder for unauthorized users to access your software without paying. This protects your revenue and lowers the chances of bad actors from releasing “cracked” versions of your product. 

Good entitlement management has a positive impact on users too:

  • Clarity on what they’re getting: Ever bought software and then been confused about what features you actually have access to? Your users may feel the same. Good entitlement management provides clear breakdowns, so there are no surprises.
  • Budget management: Detailed entitlement information helps users track how they're utilizing the software. This allows them to identify unused features and potentially adjust their plan to save money.
  • Peace of mind on compliance: Using software outside of the agreed terms can get messy. Entitlements and tracking systems help prevent accidental non-compliance, protecting users from potential legal headaches.

What typical challenges do software entitlements bring?

Even with the best intentions, managing entitlements can get tricky, especially as your company or customer base grows. Here are two main areas of difficulty:

1. Complexity in management

  • There are many moving parts: Entitlements can include many components: license types, specific features, usage restrictions, expiration dates, etc. Keeping track of this across different software products and countless customers can get complicated fast.
  • Large organizations, diverse needs: Imagine a multinational company with multiple departments, each needing slightly different access levels across several software tools. Managing entitlements here can feel like untangling a giant knot.
  • Change happens: Software updates introduce new features, pricing plans evolve, and customers upgrade or downgrade their plans. An entitlement system needs to keep up with this constant change.

2. Compliance risk

  • Accidental non-compliance: Even well-meaning users can sometimes unintentionally use software incorrectly. Maybe an employee installs software on too many devices, or a feature is used in a way not allowed by the license.
  • Financial penalties to customers: If you discover these violations, the consequences can be costly for your users, ranging from fines to the need to purchase additional licenses, and potentially even restrictions on using the software.
  • User reputation damage: Customers who misuse your software ruin the trust you’ve built. This can hurt their ability to negotiate favorable deals with you in the future or even lead to you canceling their contracts.

How to manage software entitlements more effectively

As you know by now, managing entitlements effectively isn't a "set it and forget it" affair. Here are key practices to ensure smooth operations for both you and your customers:

1. Regular audits

Performing regular audits is essential to protect your revenue streams. These audits identify instances where customers may be using features or exceeding usage limits beyond their purchased entitlements, ensuring you receive fair compensation for the value your software provides. 

Additionally, audits offer invaluable data on how customers interact with your software. Analyzing this data helps you make informed decisions about future pricing, packaging, and potential product improvements — ultimately leading to higher customer satisfaction and reduced churn.

2. Clear communication

Transparent communication lays the foundation for successful entitlement management.  Ensure your license agreements and product documentation are written in clear, unambiguous language, minimizing the risk of misinterpretation and accidental violations.

Another great way of avoiding communication errors is to always look for opportunities to educate your customers about the “fine print” of their entitlements, including installation limits and usage restrictions. 

You also want to make the upgrade process frictionless. When customers approach their usage limits, present intuitive upgrade paths that turn potential compliance issues into new revenue opportunities.

3. Choosing the right tech

To improve your entitlement management, invest in a dedicated system that integrates with your existing billing, sales, and CRM tools. Automation is vital — reducing manual overhead and potential errors in tracking entitlements.  

Look for a scalable solution that can adapt alongside your business growth, handling increasingly complex pricing models and usage scenarios.  

Consider tools like Orb that offer real-time metering and reporting capabilities. With up-to-the-minute visibility into customer usage, you can accurately manage entitlement compliance and prevent unexpected spikes that could strain your resources.

Next steps

You've learned the advantages of software entitlements for optimizing your business. 

Remember: Software entitlements are key for protecting your company’s revenue too and you should always have a solid implementation plan so you’re giving users access to your SaaS while remaining compliant and avoiding fines or penalties during audits. 

Now, it's time to focus on implementing this entitlement strategy with all the fundamentals we’ve explored in this primer.

May 13, 2024

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