HRMS pricing models explained

Despite the many permutations – and leaving aside the ‘freemium’ option that some vendors offer – there are basically two types of HRMS pricing model: the subscription and the license; or to put it into more evocative terminology: the rental and the purchase.

The subscription approach is common with off-site cloud HR packages and indeed, its popularity has risen riding piggyback on the Software as a Service model. The subscription payment is usually made on a monthly basis and the amount is usually dependent on either number of system users or, more often, number of employees in the client organisation.

The license fee is the more traditional feature and is still largely associated with systems running via on-premises servers. This is the you-buy-it-you-own-it model and carries a greater degree of responsibility for the system’s smooth running but also a greater degree of freedom.

Subscribe beats license

The subscription obviously costs less up front and it’s largely on this basis that it’s become so sought-after, especially among small to medium-sized businesses who may not want a high initial outlay. And the license fee (i.e. purchase cost) isn’t the only factor that makes the ‘day one’ cost of the perpetual license more expensive. Licensed, on-premises software usually costs more to customise and integrate with your other HR and business systems. Similarly, depending on requirements, you may incur additional hardware and middleware costs as part of the installation. Likewise, HRMS SaaS vendors tout their low to non-existence maintenance costs, with ‘owned’ systems generally needing more in the way of upgrades, updates and patches.

License beats subscribe

So far, so HRMS SaaS. However… in one way, licensing HRMS is like buying a home; it may cost a lot up front but once you’ve paid for it, it’s yours; whereas the tenant in the property next-door will be paying rent every single month for as long as they live there; and even if they decide to move, they’ll be paying rent somewhere else. In that sense, the ongoing costs of the subscription approach are greater and sooner or later (most sources suggest around the seventh year of use) the costs begin to converge and before long, the total cost paid for the subscription outweighs that of the license. Bear in mind that these days, most businesses are buying HRMS hoping/expecting to get 10 years use from it at a minimum. Furthermore, HRMS SaaS is often less customisable, and it’s cheaper to maintain simply because there is less upgrading and updating being done – what you see is what you get.

Recommended Reading: HRMS Selection Survival Guide - 9 proven steps you should know about HRMS selection

At the end of the day, it’s “horses for courses” and your decision depends on your business requirements. To stretch another analogy, it’s the difference between buying ready-to-wear and going to a bespoke tailor: if you have a generic size and shape, you may be able to walk out of the shop wearing your HRMS SaaS suit, but a perpetual license outfit will not only fit your perfectly but it may last you a lifetime (well, not quite, but you get the point).

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Dave Foxall

About the author…

Dave has worked as HR Manager for the Ministry of Justice for a number of years, he now writes on a broad range of topics including jazz music, and, of course, the HRMS software market.

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Dave Foxall