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With a license manager, a customer buys your software product, for example, a plugin, and receives the zip file containing the source code. Once they install the plugin onto their WordPress website, they will need to activate it with the license key for it to work.
The license key gets entered and is then checked by your license server, which will contain a list of valid licenses.
Once a valid license is found, you will then grant full access to the functionality of the plugin.