Software leasing in the UK
We have been leasing computer software since 1989. Software suppliers, or authors as they are sometimes known, used to only offer two payment options to their clients; Pay cash up front or lease. We have worked with hundreds of software companies in the past, from the small niche companies that focus on software for the building sector, to the likes of SAP and Microsoft.
However, over the last ten years there has been a movement in the software sector to sell software as a service or SaaS as it is commonly known. In this article, we take a look at the two options.
What is the definition of SaaS?
It is software that is centrally hosted. Users pay to use the software which they do so by connecting via the internet, commonly referred to as cloud computing.
The history of SaaS
Most people believe that SaaS came about with the advent of cloud computing. However, this is not strictly true. A SaaS model has been around since the 1960’s. However, the real growth has come about as cloud computing has developed.
The benefits to a software company offering SaaS
- It’s an easy financial concept for the software author to sell to a prospective client, i.e “You can use our software for £10.00 per week per user.” Sounds less expensive than saying we charge £1,500.00 upfront per user”
- You sign companies up for a minimum period of time then they drift into an extended use period
- It’s a true rental model, all costs can be put against profit
- It’s a regular income stream
- There are then the other technical benefits such as the software being centrally hosted
- The client pays no interest on borrowed money
The reasons why software companies prefer to offer a leasing option
- Cash flow. In the example above, you would invoice and get paid the £1,500.00 per user as an upfront payment
- Bad debt. If there is an issue or the client stops trading, the income stream also stops
- At the end of a lease period, you would sell them new licences and start again
What we are seeing as a software leasing company
We have lost some big suppliers of software that we have worked with for many years as they have decided to move away from selling software licences upfront to offering a SaaS model. Part of this is due to competitive pressures and for some, it is simply just joining the SaaS bandwagon.
More recently, we have started working with software suppliers who ran a SaaS model but are changing back to software leasing. They might have been caught out with a few clients who stopped trading or do not like having to wait three years to get all their money. Using the example above again for a 10 user licence, when you win a deal on a SaaS model you will invoice the client for £100.00 per week. Under a software leasing model that is £15,000.00 upfront. Mentally, winning a £100 order per week is not as good as the cash up front option.
Please call Steve Holdstock on 0116 243 8822 or email firstname.lastname@example.org if you want to compare leasing software to a SaaS payment model.