SaaS applications are widely adopted across industries as they are scalable, easy to use, and affordable compared to perpetual/legacy software.
As these applications deal with large volumes of data and sensitive information, a legal software agreement outlining the terms and conditions is signed between the SaaS vendor and the buyer.
Most companies and their IT and security teams overlook the service agreements stated in their SaaS contracts. This leads to security lapses, including data protection issues. And it can get worse when managing multiple SaaS subscriptions.
Therefore, paying attention, understanding what to look for in a SaaS agreement, and checking the vital information that matters to your business is essential.
SaaS buyers must know the terms they accept and the other liability clauses and SLAs. Hence, we created this exclusive SaaS agreement checklist to help you understand what to look for while signing a SaaS agreement.
What is a SaaS agreement?
A SaaS license agreement clarifies important aspects like intellectual property rights, confidentiality, limitation of liability, etc. that might impact your business directly or indirectly.
SaaS buyers must acknowledge and accept the SaaS subscription agreement terms, sign the contracts, and provide their consent before using the product. However, they need to read these policies while buying the subscription and note the policy changes if any future updates are made.
Buyers don’t read SaaS license agreements
According to Deloitte, 91% of Americans never read the agreement. It's essential to go through the nitty-gritty of the contracts, like liability clauses and SLAs.
You and your team will be using the software for a long time, and it may have access to sensitive business information. So, paying close attention to these details is vital to avoiding any potential issues down the road.
Why do you need a SaaS agreement as a buyer?
A SaaS agreement serves as a common ground for software providers and customers. It works as a legal shield from the software providers’ perspective that details all obligations for the end users.
The SaaS vendor can even hold the customers accountable in cases of service misuse or violation of agreement terms, as per the applicable law.
Some of the crucial aspects you need to check in a SaaS agreement are:
- How does the vendor define the data collected and stored on their servers?
- How does the provider collect the data?
- The type of data collected and the duration for which data is stored
- Will the company erase the data once you stop using the services?
- Who has ownership of the data?
- Is there an indemnification clause included in the SaaS contract?
- What is the penalty for breaching the contract?
- Who will be held accountable in the event of a data breach?
You need to find the answer to these questions in your SaaS contract agreement. A SaaS agreement helps buyers know about data management, liability, and SaaS usage terms.
Reading the cloud service agreement conditions before accepting them can be daunting; include a legal team during the contract and follow this SaaS contract agreement checklist to make the process easier.
The 10-Point SaaS Agreement Checklist
1. Start and End Dates
The start date is when the SaaS agreement officially becomes active. From the agreement start date, the SaaS application becomes available for use by individuals or companies that purchased it.
The SaaS agreement’s end date refers to the renewal or termination of the subscription. To ensure a smooth user experience and prevent application downtime, it's crucial to stay vigilant about tracking start and end dates.
Tracking the end date of the SaaS subscription agreement is essential for the sales teams to negotiate the contract upgrade or renewal terms.
Sales reps can help companies get the best value from a SaaS subscription. Planning the renewal negotiation strategy ahead of the curve is always profitable for companies, and this is possible only if the contract dates are tracked effectively.
Along with the end dates, it’s crucial to check whether or not the contract is on auto-renewal. Keeping a check on this small thing can save you substantial money in the long run, preventing needless expenses due to auto-renewals.
2. Access Rights and Users
The next vital aspect of a SaaS agreement checklist is access rights and users. Most agreements cap the number of users accessing the software; this limit or restriction varies per plan.
Most basic SaaS agreements come with only a single-user license, so multiple users can’t use it as per the contract. While buying the subscription, you should know this parameter to save a lot of money.
If you have more members in your team, you can go for an enterprise plan or ask the provider to customize the agreement as per your requirements. You might get a good discount from the provider.
You need to check the penalties, number of users, and data available. For example, some SaaS vendors are fined for violating the agreement laws and usage policy.
In addition, the company may have the right to terminate or put the contract on hold for a certain period.
3. Customer Support and Services
While buying a SaaS application, customer support is essential to ensure a smoother user experience and get swift help during app downtime.
Before you opt for any SaaS, read their customer support and service clauses carefully. Some companies offer customer support via phone, some provide 24×7 support via email, and others offer both.
In the customer service section, you need to check how the company will provide customer support and their typical response time.
Response time matters, especially if a time zone is different between your area and the company location.
Ensure that the SaaS vendor provides onboarding and technical support if you cannot access or use the software seamlessly. The vendor must indicate these in the SaaS agreement, or you can request that they add them to the pricing.
4. Data ownership and usage
Data ownership is a serious consideration with legal implications that you should never overlook while subscribing to any new SaaS tool. The SaaS agreement should clearly define how the SaaS vendor will collect the data and what data ownership management looks like.
Data ownership is often a gray area, as companies may show superficial information about their data collection and protection clauses while burying the necessary details. Do not fall for the trap.
If the vendor claims ownership of the data, get to know how they will use it. Some agreements may grant the SaaS vendor the right to use your data to improve their services, but you can restrict the vendor from doing so.
As the service recipient, you must be careful concerning sensitive information such as patents, source codes, trade secrets, and confidential customer information.
Data ownership has been streamlined in EU countries due to GDPR compliance, but in other nations, SaaS vendors may collect extensive data sets for diverse purposes. Ensure you limit the usage by clearly defining the data usage clause in your SaaS subscription agreement.
5. SaaS subscription/renewal notice period
Next on our SaaS agreement checklist is SaaS renewal. It is a critical aspect, and it often creates management trouble for the subscribers. SaaS vendors should clearly define the notice period and set a deadline if users don’t wish for automatic renewal.
If the user doesn’t wish to renew the contract, they must notify the vendor before the notice period stated in the SaaS contract agreement.
For example, if the SaaS agreement mandates 30 days' notice, subscribers or users must inform the vendor within that timeframe if they wish to renew the SaaS contract or not.
But here’s the problem: an enterprise will use 100+ SaaS applications, and each app will have its agreement and different notice periods for renewals.
Managing these SaaS subscription agreements manually can be time-consuming and cumbersome. Companies that don’t have a formal process for managing a SaaS agreement can face several issues in keeping up with the notification length and the recurring SaaS subscriptions, leading to auto-renewals.
A notification length of 30 days is the most popular duration, followed by 60 and 90 days. But some SaaS agreements also have a shorter notification period of 15 days. On the other hand, a few contract agreements have a notification period of 180 days or even more.
Ensure that the notice period is clearly stated in the contract, negotiate with the vendor, and opt for a 90-day notice period. Use a centralized contract management system to manage SaaS agreements and stay ahead of renewals using automated workflows.
Here’s Pratibha Mehta from Falkonry, recalling her experience with CloudEagle and how it helped her team streamline SaaS renewals:
6. Total SaaS Contract Value
It is important to know the total contract value and the amount of money you will pay for the complete renewal.
The total contract value aggregates various financial obligations for every SaaS agreement across all business entities. Having firm control over these details gives you an extra edge for SaaS agreement optimization.
There are often specific gaps between the initial SaaS contract commitments and the actual amount spent for the services.
For example, if the existing license shows a SaaS contract of $20,000 and the actual billing in the invoice is more than that, it’s essential to understand the reason for the billing surge.
There could be several reasons for the additional charge, including more active users than stated in the SaaS contract, overages, opt-ins for new SaaS features, and more. Often, team members subscribe to a new service on a trial basis and forget to cancel it before renewal.
So, it’s recommended that you check and compare the SaaS contracts frequently and track app usage, additional feature add-ons, and other factors that led to price escalations.
Instead of monitoring the expenses manually, use a SaaS spend management software like CloudEagle to track app usage and identify redundancies that caused your spend to surge.
Leverage the cost optimization insights provided by the platform and optimize your spend.
7. Service Level Agreement
SLA is a significant aspect of SaaS agreements you should check while subscribing to a new service.
Typically, all SaaS agreements come with a comprehensive SLA section covering the services vendors ought to provide, including the different performance standards and usability criteria.
The best thing about SLAs is that the vendors must meet the requirements.
For example, most SaaS agreements offer a 99% uptime percentage, and if the vendor fails to meet it, you can hold them accountable if stated in the SLA.
Suppose you face frequent service interruptions or sluggish performance. In that case, you can report your issues to the company and ask them to make reasonable efforts to resolve them as soon as possible.
Response time is a crucial service level agreement clause that defines the turnaround time for any problem resolution from the vendor side. This clause plays a significant role if you have a substantial dependency on that SaaS.
Subscribe to SaaS agreements only if you are comfortable with their service terms and performance standards.
8. Consumption Metrics and Billing Units
In SaaS agreements, "consumption metrics" are a set of parameters used to measure the usage of the SaaS application. You need to pay close attention to this clause as it’ll help you understand how the vendor will bill you during contract renewals.
The vendor might charge you on a per-user or per-usage basis based on how your users have consumed the application.
Effective management of consumption metrics and billing units is essential for finance teams and business owners. It will help the team optimize SaaS expenses.
You can use a SaaS management platform like CloudEagle to keep track of your consumption metrics and make necessary cost optimization decisions. This will be useful during SaaS agreement negotiations, where you can cut unnecessary expenses.
It's important to meticulously review the consumption metrics and billing charges before signing a SaaS subscription agreement to ensure they are clearly defined and easily understandable.
9. Data Handling and Regulatory Compliance
An essential aspect that should not be overlooked in a SaaS contract is next on our SaaS agreement checklist.
Data protection is an inevitable aspect of the SaaS ecosystem, and vendors rely heavily on regulatory compliance to process personal data.
It is critical to know how the SaaS vendor stores, manages and uses the personal and corporate data stored on its servers. No buyer will ever want to sign a SaaS contract with a vendor incapable of securing the data.
With the existing regulations, including GDPR, CCPA, PCI DSS, and SOC II, several companies must follow these regulations.
Ensure the vendor’s product complies with the latest security and compliance regulations before signing the contract.
If you are in a region or industry that requires compliance, you should ensure that the SaaS vendor also complies with the exclusive jurisdiction. While reading the SaaS contract, ensure that the agreement also outlines all relevant information in accordance with the applicable laws.
10. Termination policy
We’ve reached the end of the SaaS agreement checklist. A SaaS contract is incomplete if it doesn’t define the termination clause or policy.
Every SaaS vendor will have a different set of rights you need to comply with as a customer. These termination policies vary based on the type of SaaS subscription you or your teams use.
There are a few things a termination clause must specify,
- Penalties, in case the customer wants to terminate the contract early.
- Notice period for a smooth termination process.
- Auto-renewal, the agreement will automatically renew in the absence of prior notice for termination or renewal.
- Data retention and migration
- Post-termination commitments
The majority of SaaS vendors will specify that you are not the owner of the data during the contract period. So, during termination, the customer should specify how the data will be migrated and retained.
Sometimes, these additional charges are hidden and billed at the end, when you renew the services. Ask vendors about the penalties for breaching licensing rights and get a clear confirmation before signing the contract.
Vendors must specify what they will do with the data and other confidential information after the contract is terminated.
A SaaS contact agreement is complete only if these elements are presented in the contract by the vendors. Do sign the contracts if you notice redundancies or shady or non-transparent clauses.
SaaS Agreement Vs. Software License: Know the Difference
In a SaaS agreement, the vendor hosts the product on their server, and the customer pays a subscription fee to use the software. It's called a subscription-based model.
The buyer has no authority over or ownership of the product. The vendor owns it and is responsible for upgrades, maintenance, accountability, and security. The buyer can use it until the SaaS contract is terminated.
In contrast, when it comes to software licenses, the customer purchases a license for the software for a periodic or one-time fee.
The buyer owns the software and is responsible for maintenance and security. It is commonly referred to as a "perpetual license."
A software license can be exclusive or non-exclusive to a specific geographic location, while a SaaS license is typically not limited to a particular region.
The conventional software license agreement often requires installing the software before using it. After the installation, users must configure the software based on their requirements and convenience. In contrast, the SaaS license agreement allows users to directly use the software through the cloud without installing or configuring it.
SaaS Management Platform to manage SaaS Agreements
Reviewing these important clauses in SaaS agreements is complex and tiresome. But, no company can afford to overlook them, as they play a crucial role in various aspects of the organization.
Business owners must use a robust SaaS management platform like CloudEagle to centralize their contracts, manage subscriptions effectively, and track renewals efficiently.
Check out how Aira centralized its SaaS contracts.
An SMP will provide actionable insights into your SaaS subscriptions. Be it renewal automation, checking for overuse, termination policy, or hidden charges, you can get comprehensive inputs that save you time and money.
Contract management: Centralize your contracts in one place for easy management and retrieve them within seconds during renewals and renegotiations. Here's how Aira centralized their SaaS contracts.
Renewal management: CloudEagle will extract all the contract metadata, including renewal dates, and create a renewal calendar.
You can create renewal workflows that initiate 90 days before the renewal date and renew your contracts on time.
Negotiation: Signing SaaS contracts is not a one-time activity; it's recurring. During renewals, you can leverage the usage data and insights provided by the CloudEagle platform to enhance your negotiations.
Assisted buying: If your team lacks the bandwidth to negotiate, don’t worry. Our on-demand SaaS negotiation experts will take over and negotiate with the vendors for you to optimize your SaaS contracts based on your usage.
From procurement, SaaS management, cost optimization, and contract and renewal management to negotiation assistance, CloudEagle has got you covered. Focus on your strategic tasks and increase your productivity while we handle your SaaS portfolio.
A SaaS agreement is crucial documentation that must not be overlooked while purchasing a product, and that's why we created this SaaS agreement checklist to help you stay aware of nuances in the process.
CloudEagle is a leading SaaS management platform that lets you manage your SaaS subscriptions and vendors. You can purchase, renew, manage, and optimize your SaaS agreements in a unified way using CloudEagle.
You can use advanced features like automated SaaS vendor discovery, vendor optimization, and smart SaaS negotiation to get the best value for the money spent on a SaaS subscription.
CloudEagle helps you simplify complex SaaS agreement management, monitor your budget, and optimize your spending effectively.
Here’s Sophie Wang recalling her experience with CloudEagle and how we helped her team optimize SaaS spending.
Whether you are a startup, a small company, or an enterprise trying to scale your business using SaaS, you can get ahead of the curve and handle the management efficiently.
Apart from managing agreements, you can keep your firm check on compliance, usage policies, and other privacy aspects with the help of CloudEagle.