Finding the most cost-effective software can be challenging, and completely depends on the use and need of the product. For years we have seen the shift toward subscription based software and leasing rather than perpetual purchases, by why is that the case? Is the low up-front cost truly more beneficial than a flat rate purchase? We’re taking a look at the pros and cons of leasing vs. purchasing software, and how either option can be useful for end-users.
Leasing and Subscription Software
We know that the subscription model drastically lowers the upfront costs of software. Sometimes requiring nothing upfront, monthly and yearly subscriptions are a budget-friendly option for small to mid-sized businesses starting out. Additionally, this leasing model allows users the flexibility to choose which programs and features work best for them with any given software. Leasing is beneficial for those looking to:
• Avoid obsolescence: An attractive option for computer hardware and software purchases because technology becomes outdated very quickly. By leasing, the risk of being stuck with obsolete technology is lower because upgrades and add-ons can be negotiated into a lease.
• Manage asset value: Leasing options (trade-in, early upgrade, renewal replacement, and add-on) help minimize the risk of depreciating equipment values. At the end of the term, the lessee may purchase the equipment, return it, or renew the lease (depending upon the original lease agreement).
• Increase flexibility: You have the option to include installation, maintenance, and other services, if needed.
Subscription-based purchases can be used in short or long-term business plans. Rate increases are usually low, so over time the amount of money saved can be drastic. Leasing software can be ever changing, so flexibility is key when going this route for purchases.
Buying software up-front may be considered out-of-date, but for some businesses it still makes sense. There’s no monthly or yearly bill, so companies with the ability to pay for the up-front cost prefer to do so. Plus, once the software is purchased, the end-user owns it…period. Companies that use older equipment benefit from keeping the same software for years on the same system, rather than continuously upgrading. But with upgrades and technology changing so rapidly, is it worth it to keep this model going? Perpetual purchasers benefit from:
• Lower long-term cost: By buying upfront, users avoid interest or subscription rates.
• Tax deductions: Buying equipment allows users to deduct its depreciation on tax returns.
• Affordable items: For less expensive items and equipment available at discounted rates, like computer monitors, it may not make financial sense to lease them.
One of the biggest downsides of this perpetual model is often associated with technical support. After a few years, users end up with older versions, or do not upgrade regularly, leaving the provider responsible for solving problems related to unsupported software. Additionally, if a maintenance fee is required yearly, there is an additional cost to be concerned with. So it would be up to the purchaser to decide if upfront cost is more beneficial in the long-run.
In the end, it comes down to what benefits an end-user most. Users with consistent equipment of older models are likely to want a flat-rate purchase, banking that fixes and updates may go unsupported in the future. Those willing to keep up with constantly shifting upgrades, technology changes, and possible rate increases are likely to lean toward subscription or leasing. It seems that for the time being, both methods seem to be sticking around, so choose wisely.