Software licensing is simply the terms under which you are allowed to use a piece of software — whether you own it outright, rent access to it monthly, or pay per user, and what happens if you stop paying. For Nigerian business owners comparing software proposals, the licensing model quietly determines the real cost of a system over three to five years far more than the sticker price does, and it is the part most buyers skim past when they should be reading closely.
The Main Licensing Models You Will Encounter
Perpetual license
You pay once (often a large upfront sum) and own the right to use that version of the software indefinitely. Updates and support are usually a separate, optional annual fee. This model has become less common for cloud software but still shows up in on-premise systems, some ERP software, and older enterprise tools.
Subscription (SaaS) licensing
You pay monthly or annually for continued access — stop paying, and access typically stops. This is the dominant model today for good reason: lower upfront cost, automatic updates, and the vendor is incentivized to keep improving the product since your payment is ongoing rather than one-time.
Per-seat / per-user licensing
You pay based on the number of people using the software. This scales predictably for small teams but can become surprisingly expensive as a company grows — a tool that costs a reasonable amount for 5 users can become one of your largest line-item costs at 50 users.
Usage-based licensing
You pay based on actual consumption — API calls, transactions processed, storage used. This is common for infrastructure and AI tools, and it rewards low usage but can become unpredictable at scale if usage spikes.
Open source with paid support
The software itself is free to use, but you pay for hosting, customization, and support. This can be cost-effective, but "free" software is rarely free once you account for the developer time needed to implement, customize, and maintain it — see our comparison of open source vs proprietary software for the full trade-off.
What to Actually Compare Beyond the Headline Price
- Total cost at your realistic scale in 3 years — per-seat pricing that looks affordable at your current headcount may not stay affordable as you grow
- What happens if you stop paying — with subscription and per-seat licenses, you typically lose access entirely; with perpetual licenses, you usually keep the software but lose updates and support
- Who owns the data — can you export your data cleanly if you switch vendors, or is it locked into a proprietary format?
- What counts as a "user" — some vendors count named users, others count concurrent logins; this materially affects cost at scale
- Support and update terms — is support included, or a separate paid tier? Are security patches guaranteed for the life of the license?
- Contract lock-in period — annual contracts often come with a discount versus monthly billing, but they also reduce your flexibility to switch if the tool stops fitting your needs
A useful habit is asking any vendor for a written breakdown of what your bill would look like at double your current user count. Some vendors will answer this readily because their pricing scales predictably; others hesitate because their pricing structure is deliberately opaque at scale. That hesitation itself is useful information.
Where Custom Software Changes the Licensing Question Entirely
Custom-built software sidesteps the licensing conversation in one important way: once built, you own it. There is no per-seat fee that grows with your headcount and no vendor that can raise prices or discontinue the product you depend on. The trade-off is a higher upfront cost and the responsibility for hosting and maintenance — which is why we always scope ongoing maintenance as part of a custom software conversation, not as an afterthought.
For a business with more than 30 to 50 users on a per-seat SaaS tool, or one whose licensing costs have grown faster than its headcount, it is worth running the numbers on what a custom-built, internally-owned system would cost over three years compared to continuing to pay per-seat fees indefinitely.
A Practical Way to Decide
- List your current or proposed software licensing costs at today's team size
- Project that cost forward at your expected growth rate over 3 years
- Compare that number honestly against a custom build quote for the same functionality
- Factor in switching costs — data migration, retraining, and downtime — before assuming a switch is worth it
A Realistic Example
Consider a Nigerian company paying a modest per-seat monthly fee for a CRM tool with 15 users today. That cost feels manageable. But if the company plans to double headcount over three years, and the vendor has a history of annual price increases, the three-year total can end up being substantially higher than a one-time custom build cost for equivalent core functionality — without even accounting for the fact that the subscription never stops, while a custom system, once built, only requires maintenance.
This does not mean every SaaS subscription should be replaced with custom software — for tools with genuinely complex ongoing development (deep CRM logic, extensive third-party integrations, constant feature updates), the vendor's continued investment in the product may be worth more than the licensing savings. The point is simply to run this comparison deliberately rather than assuming either option is automatically cheaper.
If you are staring at a growing SaaS licensing bill and wondering whether owning your own system would actually be cheaper, book a consultation with Harzotech — we will run the real numbers with you.