Operation Improvement Inc.

Software as a service is frequently offered with a “free tier” or “freemium” option for testers to evaluate the suitability for use. After that, typical billing is either per seat licensing or “pay per use”. While per-seat agreements are attractive for a fixed and predictable periodic expense, there are a few things to watch for.

1. Seat bundles. Licenses may be offered in bundles of 10, 25 or more.

2. Vendors that don’t publish hard price commitments often want to negotiate a contract commitment or upsell.

3. License renewals may not have a cap on price increases.

4. License management, making sure that every seat is filled, requires oversight.

5. Per seat licensing agreements may not easily scale up or down when demand for the service changes over time.

“Pay for use” services easily scale up or down. This reduces costs when need for the service declines, but the total cost over time may be harder to predict, harder to budget, and may wind up costing more than per seat licenses.

Run the numbers and model scenarios when comparing vendors with different payment models.

Final thought, always identify a primary vendor and a backup plan for cloud-based services. Know how you will route phones, emails, web traffic and where you will host servers just in case.

The largest vendors in the business will obsolete a service when it is no longer a part of their tech road map. (Microsoft SKYPE, Amazon Chime Business Calling, etc.)