How to Monetize your Software [GUIDE]

Published on: August 31, 2022
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Table of Contents:

How to Monetize Free Software

You can indirectly monetize your software by offering it for free. Many different companies use this methodology to give users a sample of their product, and then offer a more complete product under a commercial license.

Monetize Open-Source Software

By making your software open-source, you can receive more views from the open-source community, allowing multiple users to look into your product and test it for themselves. You can then monetize your product by offering commercial licenses for that open-source software, that unlock premium services for the user such as:

  • Offering close-sourced features on-top of the open-source software
  • Hosting services/SaaS
  • Consultation, technical support, and onboarding

Some examples of open-source software that offers commercial licensing include:

  • MySQL, offers 24/7 customer support, database servers, extra storage, and add-ons such as MySQL Shell for their paid tiers.
  • QT, offers technical support and account managers, as well as different pricing tiers for design, development, and QA.
  • Lightworks, has a free product, but locks close-sourced features and cloud storage behind pro plan.
  • Julia Computing, locks their browser-based IDE service JuliaHub behind pay-per-usage.

Freemium Model

In a freemium model, you offer your software (close-sourced) for free, but lock extra features behind a paid tier. These extra features can vary per use case, but some freemium models include:

  • Limiting usages of the software/service and unlocking more/unlimited usages in the paid tier.
  • Limiting the amount of time the software/service can be used, and unlocking more time through payment.
  • Having extra features only available in the paid tier (Ex. No watermark in a video editor).
  • Including extra services in the paid tier (customer support, onboarding, account managers, etc...)

Different Monetization Solutions for Commercial Software

Subscription

A subscription model will ask the user the renew their license after a certain period of time. The user will need to pay each subscription period, if they want to continue using the product.

Subscription models are particularly useful for monetizing existing customers which works well for both business-business and business-customer.

An example would be Driver Easy, which offers a one year subscription plan in which the user can use the software to its full capability within that one year, but will need to renew their license each year.

Per-use

A per-use model will vary the pricing of the product based on the usage. This model offers more flexibility for the customer as they pay based off how much they need.

Project management software is quite popular with this model, as they can be used to charge per-user on an account.

An example of this would be Trello, which uses both a subscription based plan, but also charges per-user on an account.

Another possible use-case is to charge per API call for SaaS, or for storage.

For more on Per-use, see Per User Pricing.

Floating

Floating models allow for concurrent usage. They allow for an unlimited number of different users, but only a certain number of users at any given moment. This model is especially useful in business to business, as it can be used at a workspace so that only a certain number of employees can access the software at a time. You can then base your pricing on the number of concurrent users and charge accordingly. For more on software that uses floating licenses, see here: What is a Floating License.

End User Licensing

The end user model falls under what is known as a 'perpetual' license. Once a software is sold, the end-user can use it however they please. There is no additional payments in the future like a subscription model, and the price will not change based on how the user uses the software. It is a one and done transaction between the software vendor and the user.

Unlike subscription and per-use models, the user will need to be fully committed to purchase the product. They can't decide to cancel their subscription later on, or stop using the product to limit the amount of money they spend. For that reason, this model is useful for products that are trust-worthy, recognized, or include trial products that give users confidence in buying the product.

Some examples include CAD software and video games that allow users to buy the product and use the product to its full features.

Should all Software be Monetized?

Not necessarily. There are many examples of open-source software that benefit the world without asking for anything in exchange, or rely on donations/sponsors. There are benefits to giving out software for free. You are likely to get more traffic, more contribution, and better feedback on your project.

Hopefully this guide helped introduce you to the concept of monetizing your software product, but in the end, it is up to you to decide if and how you will monetize your product.