Per-User License Misalignment

What is per-user license pricing?

There's a lot of talk these days about per-user licensing models. Per-user pricing is simple and is a great model for vendors. But what happens when the benefits actually delivered by the software don’t match up with the requisite costs? It’s called misalignment, and it’s a big problem for government departmental IT leaders, procurement and business stakeholders. 

Here's what you need to know about per user license misalignment and how to avoid it.

What is per user license misalignment?

If you're a SaaS or on-premise customer, then you know a thing or two about per user license misalignment. This refers to the challenge of ensuring that your software purchased and usage maps together in ways that make sense for your organization now and in the future. 

Per user license misalignment is one of the areas behemoth vendors often fall short when aligning the customer experience with proper spend principles. For example, sometimes there will be heavy usage from a small group of power users, while other infrequent users still pay full price. This can lead to ever-growing expenses and a misaligned customer base, since forced payment per user absolutely benefits the software vendor to the detriment of the customer. 

To avoid falling victim to per user license misalignment, software buyers need to explore options beyond per-user pricing models.

How does misalignment hurt your organization?

Misalignment between an organization and its software vendors often causes enormous financial strain. Without tedious, low-value tracking tasks, orders may be placed for more licenses than necessary. This leaves the business with excess and rarely used seats. Without proper alignment and budget process communication with the purchase champion, budget updates may exhaust time better spent on more meaningful activities like strategic planning and process execution. 

The impacts of misaligned budgets and processes extend far beyond the books. They also present an enormous interruption to an organization's commitment to the mission. To prevent any further burden on your business or your budgeting process, ensure there’s proper alignment between the two.

What’s the new way to mitigate the effects of per-user license misalignment within your organization?

Managing the costs incurred by per-user licenses can be a tricky undertaking. That’s why organizations need to be careful to ensure they are striking the right balance between covering their usage needs and not overspending. Keep in mind that vendors depend on your inefficiencies to increase license counts.  

But there's a much better way to buy software. 

One way to mitigate the effects of misalignment is to purchase software via a consumption model. This type of model allows for an organization's variable spend on software to scale up or down with usage levels, creating budgeting flexibility while avoiding unnecessary overhead. This approach helps an organization optimize the value from its software purchase, saving time and money in the long run.

How to avoid per-user misalignment in the future? 

When making decisions about software licenses for your organization's needs, be sure to maximize value for the price. Software is a key component of any organization's successful operation. 

To avoid this kind of issue in the future, consider your consumption patterns. Buying a software solution that allows you to get the problem solved – instead of buying more and more licenses on a per-user basis – will avoid cost overruns and remove the headache of managing user license reallocations. Additionally, find vendors that connect costs with value as much as possible, and build long-term relationships with them. These types of vendor organizations can often provide advice on otherwise confusing choices. 

If an incumbent vendor suggests there are no alternatives, seek merchants with different motivations. You’ll likely hear a message that resonates with you. 

Finally, always be sure to understand any limitations and restrictions associated with the software you choose before committing to it. Doing the research legwork beforehand makes all the difference when trying to avoid headaches down the road.

Per-user license misalignment is a real and costly issue that can hurt your organization in a big way. However, there are ways to mitigate the effects of this problem and even avoid it altogether in the future. At Kinetic Data, we believe that consumption-based pricing models help align everyone's interests and put us all on the same side. 

After all, isn't that what this is all about?