This question recently appeared on Quora, and I thought it would benefit our readers to hear the answer.

“What is standard practice for when companies want to “switch seats” in a SaaS licensing context? I run an early-stage SaaS company and we sell on a per-seat basis. Occasionally I’ll get a request to switch a seat from one user to another. Sometimes this is because someone left a company and in other cases it’s because a user isn’t very active and they want to switch to someone who will be more active. What is standard practice here for this? Obviously we’d prefer that a new seat license be purchased rather than transferring a license but we also want to try to be flexible given that we’re a start-up”

This question reaches outside of the SaaS domain and applies to many per-user or named-user license models in the traditional on-premise environments. The trick is to allow license transfers within per-user agreements while still giving yourself some protection from multiple users ping-ponging a single license among themselves. This ping-ponging effect most likely disrupts your per-user pricing model.

In my opinion, IBM does a nice job addressing this with their software license agreement. The agreement has language that provides the customer the flexibility to transfer but within reasonable constraints. The language says the customer may transfer per user licenses to another user but only on a permanent basis, like the user being removed from a project or the company.  Although the language is imperfect, it did the job quite nicely in practice.

Looking ahead, it would be ideal if your SaaS tool captured authorized user transfers so both you and the customer could see that type of activity and how many seat licenses are actually being used to service X number of users. I recommend you to check out http://www.sentinelcloud.com/ if you are looking for these types of controls and reporting capabilities for your SaaS application.