Software Leasing vs Software Purchase: Which is Better?

As technology has evolved, we have seen a flurry of new software solutions in the market. Software vendors are releasing new updates and versions of their software to fulfill the evolving demands of their users. While the adoption of enterprise software is rising, pricing continues to be a deal-breaker for many companies worldwide. 

Microsoft, Oracle, Salesforce, and other software giants have captured a significant chunk of the market. Having said that, their tools and solutions are not affordable for small to mid-sized companies. This is the reason why many companies are thinking about software leasing. 

However, is leasing software feasible in the long run? While a lot of firms are considering the lease of software, not everyone is convinced of the idea. We all understand how renting apartments and cars works. Now you can also explore the  ‘software on lease’ option for your business. Many startups and small businesses are in favor of leasing software as it saves the mammoth upfront costs. You can lease any type of software including e-commerce, accounting, inventory management, and more. 

In this article, we will take a look at some of the benefits and disadvantages of purchasing and leasing software.

SEE ALSO: 5 Important Questions to Ask Your ERP Vendor in 2022

Advantages of purchasing software

  • No recurring payments

When you purchase software, you pay the upfront cost in one go. This means that you do not have to worry about paying monthly or yearly installments.

  • Cost-efficient in the long run

Since you have to make one big payment initially, your overall costs are significantly lower in the long run compared to leasing a software. This holds true even after installation, training, and maintenance cost is considered. 

  • Tax deduction

If your business is thriving, there is a chance that you may get an attractive deduction on taxes if you purchase it instead of leasing it.

Disadvantages of purchasing software

  • Tech support costs

When you purchase a software solution, any issues or problems associated with it become your responsibility. Any added costs for technical support and maintenance are billable as opposed to being included in the monthly fee if you had leased the software. 

  • Upfront cost

As mentioned above, you will be paying a high upfront cost when you purchase a software. This approach may not be viable for smaller companies that are typically operating on shoestring budgets and lower cash flows. 

  • No upgrades

When you purchase a software solution, a lot of software vendors do not give you the option of upgrading the software when a new update is released. This puts significant pressure on you to choose a software that you are likely to use for a long period of time. 

  • No exchanges

Once you complete purchasing the software, you cannot go back on your decision. Most software vendors do not care whether you like the software or not even after you pay the entire purchase price. 

What does software leasing mean?

In simple terms, software leasing means that the software vendor provides the software and the consumer uses the software. However, the complete ownership of the software is in the hands of the software provider, who in return, charges a monthly fee from the end-user for the duration of the contract. 

Software leasing allows businesses to access and use advanced software, particularly smaller companies that may not be able to afford the tool otherwise. Having said that, the profitability of software acquisition primarily depends on two key factors; the overall ownership cost and acquisition cost. 

Advantages of leasing software

  • Low upfront cost

When you lease the software, you do not have to pay a large sum of money as you do when you purchase the software. Software lease means that you only pay a fraction of the full price periodically, enabling you to save capital. 

  • Support

Typically, lease agreements come with costs associated with ongoing maintenance and technical support. This works wonderfully well as you are in constant communication with support executives if and when you require assistance. 

  • Tax benefits

Account Assets Audit Bank Bookkeeping Finance Concept

Almost all leases are deductible from taxes in the first year.

  • Staying up to date

When you lease a software solution, you do not have to worry much about using the latest version of the software. You will be given an option to lease the latest and the most recent version of the software, and in most cases, without any additional costs. 

Disadvantages of leasing a software

  • Long-term costs

The lease of software may seem like a cheaper alternative since you do not have to pay an upfront cost. However, in the long run, it could potentially cost you more than purchasing the tool. The main reason for this is that you save significantly more money as you do not have to pay the leasing fees. If you are likely to use the software of your choice for a longer period of time, purchasing software is more logical. 

  • Contractual obligations

Hand signing business contract

When you sign a lease, you are tied to the vendor’s teams of service and other conditions for the entire contract. This means that even if the software is obsolete or you stop using the software, you are still obligated to pay the vendor until the specified data of the contract. 

Final words: Software purchase vs software leasing

We have explained the benefits and disadvantages of both; software leasing and software purchase. Depending on your requirements, budget, and the duration of which you want to use the software, you can decide which approach is ideal for you. 

ToolsMetric helps you find the best software tools for your business. You can compare, evaluate the different features, and the pricing plans of different software solutions and choose the best platform for your business needs. 

If you are looking for similar informative articles related to software, keep coming back to our website. 

SEE ALSO: 4 Major Differences between an Accounting and ERP software

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Karandeep V

Karandeep was born in Pune, Maharashtra, an upcoming metropolitan city in the Western region of India. While most members of his family are engineers, he had different ideas. He was more inclined toward exploring the non-technical aspects of a business, which is why he studied Bachelors of Business Administration at Symbiosis International University, Pune.  Having said that, his love for new and upcoming technologies remained intact, which is why he has written extensively about technology throughout his career. After a brief stint with a gaming company at the beginning of his career, he discovered that his love for writing was not temporary.  Being a tech geek, he always liked installing and playing around with new applications on his mobile devices and the home desktop. He was fascinated by how technology can simplify even the most mundane and complex tasks with just a few commands. He keeps a close eye on how businesses use different tools to streamline their operations to boost productivity and efficiency.  At ToolsMetric, he writes product reviews that cover the main features and specifications of different enterprise applications. The sheer amount of innovation and hard work that goes into building these tech solutions is one of the reasons why Karandeep loves reviewing these tools. Besides product reviews, he also writes interesting news articles and blogs that track the latest developments in the tech industry.  When he is not writing, you can find him rooted to his seat playing video games, watching movies, or supporting his favorite football team. Since his childhood, he has always loved to travel and explore new places. Traveling is a major part of his life due to a myriad of reasons such as experiencing new cultures, food, and traditions. His other hobbies include playing football, cooking, and running.  You can find him on LinkedIn here.

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