Software lease vs. purchase: What is more economical?

Software leasing vs. buying: What is more economical?

Short: In today's digitalized business world, the use of powerful software for companies of any size is essential to remain competitive.

In today's digitalized business world, the use of powerful software for companies of any size is essential to remain competitive.

However, the acquisition of software is often associated with high initial costs, which can represent a considerable financial burden, particularly for small and medium-sized enterprises. This leads to the central question of Software Financing: Should you buy or lease software?

Both models have their specific advantages and disadvantages. In this post, we illuminate the economic aspects of software leasing compared to buying to provide you with a sound basis of decision.

What is software leasing?

Software leasing is a financing model in which a company acquires the rights of use for a software for a specified period and pays regular rates for it. Instead of buying and owning the software, the company rents it quasi.

The durations for lease contracts usually vary between 24 and 60 months.

At the end of the contract term, there is often the possibility to extend the contract, to acquire the software to the residual value or to change it to a newer version.

This model is particularly attractive for companies who want to preserve their liquidity and stay up-to-date technologically.

What is the software purchase?

The purchase of software is the traditional model in which a company acquires an unlimited license to use the software. With the purchase, the property and the full rights of use of the software are transferred to the company.

This means that the company can use the software for as long as it wants, without further running costs for the license itself. However, the purchase often involves high initial investment.

In addition, additional costs for maintenance, support and updates can be incurred to keep the software up-to-date and secure.

Software-Leasing vs. Purchase: A detailed comparison

Short: The decision between leasing and buying depends on various factors that depend on your company's individual needs and financial situation.

The decision between leasing and buying depends on various factors that depend on your company's individual needs and financial situation. Below we compare the two models with respect to the most important criteria.

Costs and liquidity

| Aspect | Software leasing | Software purchase | |---------- ** ** Initial investment** | Gering, as only the first rate is due | High, as the full purchase price is payable | ** Running costs | Fixed, scheduleable monthly rates | Low, but it can cost maintenance and updates | ** Total cost | Can be higher than the purchase price | Long term often cheaper when the software is used for a long time | ** Liquidity | Will be saved as no high one-time payment is required | High initial investment is heavily charged |

Flexibility and scalability

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References and further reading

Short: The following independent references complement the topics in this article:

The following independent references complement the topics in this article:

• Bitkom – German digital industry association
• German Federal Office for Information Security (BSI)
• European Commission – Digital strategy
• MDN Web Docs (Mozilla)
• W3C – World Wide Web Consortium

> "Mobile apps need clear offline and security models alongside UX—trust collapses without both." > > — Björn Groenewold, Managing Director, Groenewold IT Solutions