The license model that the vendor offers does not expose us to undue risk as our usage grows

Description

Understanding the licensing models provided by vendors is crucial to managing costs and mitigating risks. These licenses detail how the software may be used and may scale based on company size, usage, or other variables. Planning, consolidation and financial reporting solutions that are implemented effectively should naturally grow in importance in an organization, increasing in cost along the way.

Example Use Case

Scenario: A mid-sized manufacturing company uses CPM software to manage various aspects of their corporate performance. The company begins to grow rapidly, leading to increased usage of their software. The licensing model they originally signed up for was based on a limited number of users, leading to significantly higher costs as the company expands.

Solution: Upon realizing the limitations of their current licensing model, the company renegotiates terms with the software vendor. They switch from a per-user license to an enterprise license model, which allows unlimited usage without further cost increases. This change mitigates the risk of unexpected costs for the company as they continue to grow.

Considerations

Each vendor will offer a slightly different flavor of licensing that may seem appealing during the original evaluation. However, be aware of cost risks over the course of a 5 year window. For example, if the licensing is employee based and you plan to make an acquisition in 2 years, your cost could increase substantially.

If you have named user licensing and are mandated to move into a broader collaborative budgeting process, your user count could increase by 20x. What if your license is based on usage and you do not anticipate how inefficient the product is at consuming CPU power in a cloud infrastructure?

For this reason, we advise against agreements greater than 3 years in a specific license model. Organizations can quickly find themselves in a bind if the vendor is inflexible on the terms.

Lastly, beware of old-fashioned fees like storage. Some vendors have storage fees in part to compensate for the inefficient manner in which they store data. Each time you create a scenario or data model, you increase storage requirements. This will either be expensive over time or dissuade you from using the full potential of the system.

Questions to Ask a Vendor

• Scaling With Growth: How does the cost of licensing increase with the growth of our company or increased usage of the software?
• Custom Licensing Models: Does the vendor offer custom licensing models to accommodate a company's specific needs or context?
• Licensing Flexibility: What flexibility does the vendor offer in terms of changing licensing models as business needs evolve?
• License Agreement Terms: Are there any conditions in the license agreement that may pose a risk to the company in the event of increased usage?