SaaS applications come in various sizes, serving different use cases. Though these applications are easier to purchase, they involve complex documentation to protect the SaaS vendor's and buyer's interests.
Every SaaS deal involves documentation called a SaaS agreement. These agreements include clauses stipulating data security, ownership, liability, etc., as SaaS applications handle heaps of data.
In this blog, we will explore the basics of SaaS agreements, and what you should know about them to ensure a successful SaaS agreement negotiation.
What are SaaS agreements?
A software as a service agreement, or SaaS agreement, is a legal contract between a SaaS vendor and the buyer. This agreement outlines the terms and conditions for users to access and utilize the software and how subscriptions and payments are managed.
SaaS agreements are necessary when a business licenses the software instead of purchasing it. In the agreement, SaaS vendors allow access to the software and other technologies through a private, public, or hybrid cloud system.
Previously, software applications were typically sold to companies and installed on their servers. However, more and more organizations nowadays prefer to license software, as it is a more cost-efficient route.
What is important in a SaaS agreement?
1. Rights of Access and Number of Users
The agreement must indicate the scope of access granted to the user based on their subscription plan. The agreement must also state the total number of users eligible to access the software.
2. Data Ownership
The agreement must clearly state who gains ownership of the files and data uploaded to the system. This will mitigate the risk of any disputes between the buyer and the vendor regarding data control.
3. Data Security
The buyer should primarily look for this part of the SaaS agreement as the vendor’s application will work with sensitive business and customer information. This part will lay out security responsibilities, backup, liability, and encryption terms, ensuring that the vendor takes the necessary measures to protect the buyer's data.
4. Renewal and Termination Terms
The agreement must clearly state the subscription period. Some vendors will impose a minimum period of use.
In this section, you will learn the SaaS vendor’s policy regarding subscription renewal, change, and cancellation. You should also take note of the vendor’s protocols when ending a subscription early.
Some vendors will charge a penalty for terminating the contract early; ensure that you’re aware of those clauses while negotiating SaaS agreements and before signing them.
What are the different types of SaaS agreements?
There are various types of software as service agreements,
Service level agreements
This necessitates the level of service that a SaaS vendor will provide, including response times, uptime guarantees, support requests, reports on service level performance, and penalties if the vendor fails to meet the agreed-upon services.
This outlines the terms and conditions of the SaaS subscription, including features, pricing, seats, payments, and subscription duration.
This is signed to protect the sensitive business and customer information that will be shared between the SaaS buyer and vendor throughout the lifespan of the subscription.
Data processing agreement
This is essential when the SaaS vendor is supposed to handle the customer’s personal data. It necessitates the responsibilities and obligations of both parties with regard to data protection regulations.
Master services agreement
Also known as a framework agreement, it represents the business-level relationship between a SaaS vendor and buyer. It states the terms and conditions that both parties agreed regarding the subscriptions purchased by the customer.
End user license agreement
It is an agreement specific to SaaS buyers; it defines the end-user's rights and obligations in using the software provided by the vendor. It typically stipulates who owns the SaaS software, who can use it, and how much they can use it.
It also covers how the SaaS provider keeps confidential information safe and who is responsible if something goes wrong. The customer's breach of this term can lead to lawsuits or penalties.
Other notable SaaS agreements include:
- Employment agreements
- Terms of service
- Shareholders agreements
- Purchase and sales order agreements
- Contractor agreements
- Privacy, security, and trademark policies
Key clauses to look for while negotiating SaaS agreements
1. Service Level Agreement (SLA)
Service level agreements (SLAs) can be an independent document or a part of a more crucial SaaS agreement. It is outlined to establish marginal performance requirements, especially regarding service availability.
In most SaaS contracts these days, an SLA is almost always included.
Moreover, a good SLA typically includes the following:
- Average response time for urgent issues, adding requested functionality, and general support
- Penalties the SaaS vendor guarantees to pay if the guarantees or agreements are not met
- Exclusions and scenarios in which the vendor is not obliged to pay any penalty for unmet guarantees
- Assured software uptime
- Security agreement
- KPIs and performance metrics
- Subscription, pricing, and billing structure
2. Data privacy and security
The use of software involves significant amounts of data generated on both the vendor's and the customer’s ends. The provider must clearly state who gains ownership of the data the users upload to the system.
Since SaaS vendors are liable for hosting their clients’ data, data ownership often becomes a gray area.
SaaS buyers must evaluate how data is stored and transferred and if there are any restrictions on accessing the stored data.
3. Intellectual property
Under the intellectual property clause, all intellectual properties are deemed licensed rights. This section will outline the access and permissions granted to the users regarding these licensed rights.
Intellectual properties generally refer to copyrights, patents, and trademarks.
In the agreement, a provision is laid under which the client acknowledges that the service provider preserves the right to ownership of the intellectual property included in the software, systems, and services to be provided.
Furthermore, the agreement will highlight specific limitations and affirm that any use of the provider’s intellectual property in a manner conflicting with those limitations is prohibited and will lead to an infringement of the agreement.
4. Termination and penalty
Most SaaS contracts offer "evergreen renewal," which means the buyer’s subscriptions are automatically renewed for another term, except if they choose to end the contract.
The vendor will include auto-renewal in most SaaS agreements, as it’ll help the vendor avoid renegotiating the contract terms every time it expires.
Most vendors will impose a penalty if the SaaS buyer chooses to terminate their SaaS contract before the established date. However, many SaaS vendors also allow clients to negotiate contract termination for any relevant reason.
So, discuss the renewal terms with the vendors while signing the contract to avoid losing money due to auto-renewals.
5. Limitation of Liability
Limitation of liability safeguards SaaS vendors against legal threats by having their customers sign a contract that prevents customers from holding them responsible for certain types of harm or losses.
For instance, if the software crashes and the customer’s business operations are compromised, the limitation of liability prevents them from seeking compensation from the service provider.
On the other hand, the limitation of liability scope also includes a condition stating in which cases the SaaS vendor will provide compensation and the capped amount of damages they could be responsible for.
As a buyer, you must be mindful of the limitation of liability and ensure an indemnity clause is in place to make the vendor liable for any security breaches or data theft.
6. Subscription plan tiers and pricing
SaaS agreements must feature the vendor's current subscription plans and the inclusions and services each plan offers.
In terms of cost, the pricing and payment terms for each subscription model must be stated transparently in the SaaS contract. The usual payment terms are monthly, quarterly, and yearly.
Moreover, the typical pricing structure of SaaS includes flat-rate, usage-based, per-user, tiered, and per-active-user pricing.
7. Customer support
This clause states how the SaaS vendor will deliver support for their services.
This is a crucial factor for buyers when looking at SaaS contracts. A good SaaS service provider is committed to providing reliable customer support that delivers timely and productive responses to client concerns.
Here are a few points to consider when evaluating the customer support clause in a SaaS contract.
- Average Response Time: This refers to the estimated timeframe the provider can respond to customer queries
- Available Support Channels: An excellent SaaS provider can provide a variety of support channels, including phone support, email support, and live chat
- Expertise: The customer support team of the SaaS company must be knowledgeable in the services and technologies they offer. This will ensure that any issues encountered by customers with the system are addressed and fixed appropriately within a reasonable timeframe.
SaaS Agreement Checklist - A must-have for SaaS buyers
A SaaS agreement checklist refers to a rundown of common negotiating points and standard terms and conditions that a SaaS buyer can use during SaaS agreement negotiations.
Individuals and businesses looking to sign up for a SaaS subscription should have an extensive SaaS agreement checklist. This will help you address all critical points in the contract agreement.
Best practices in SaaS agreement management
1. Centralized SaaS contract management
Centralize your SaaS contract and invoices in one place. This practice makes SaaS contract negotiations and renewals simpler and quicker. It also makes daily SaaS more manageable on one platform.
2. Regular SaaS agreement audits
Regular SaaS agreement audits are a good way of avoiding unnecessary fees. This also helps you make sure the SaaS vendor follows safety protocols. This ensures safety and privacy for whatever data you save or share on the server.
3. Communication and collaboration with vendors
As a paying customer, you should be able to communicate and collaborate with the SaaS vendor easily. Therefore, whatever issue may arise, you get immediate assistance, and the provider can deliver an adequate and timely solution.
4. Using a SaaS agreement management tool
A SaaS agreement management tool is a technology designed to enhance the efficiency of contract management proceedings.
Top-tier contract management tools such as CloudEagle allow companies to conveniently manage contracts, invoices, and relevant workflows on one platform.
CloudEagle is a comprehensive SaaS management platform that lets you centralize your SaaS contracts and other important documents, making it easier to retrieve and review them during audits or renewals.
You don’t have to fish for the contracts; in just a few clicks, CloudEagle filters will surface the needed contracts in no time. Review the contracts and head to the renewal renegotiation confidently.
Check out this interesting customer story from Aira and how they centralized contract management using CloudEagle →
SaaS agreements are legally binding contracts between the SaaS vendor and the buyer that stipulate the terms and conditions that both parties should follow throughout the duration of the agreement.
SaaS applications deal with large volumes of data, so SaaS agreements must not be overlooked from the SaaS buyer's perspective.
This article highlights the crucial aspects of SaaS agreements, including key clauses to look for, SaaS contract best practices, and a SaaS agreement checklist.
One of the best practices is to use SaaS agreement management software like CloudEagle to centralize documents and manage SaaS contracts efficiently without misplacing them.
Book a demo now if you want to surface your SaaS contracts and ace your negotiations.
Frequently Asked Questions
1. What is the Difference Between SaaS and a License Agreement?
SaaS, or Software as a Service, generally refers to the service itself, whereas the license agreement pertains to the terms and conditions provided by the SaaS vendor to regulate usage and access to the software service.
2. How to get out of a SaaS contract?
Answer: The simplest way to get out of a SaaS contract is to negotiate with your SaaS vendor. Generally, you will be asked to pay the penalty for early contract termination.
3. How long are SaaS contracts?
Answer: SaaS contracts are typically valid for about a year and may extend for 3 to 4 years, depending on the client’s enterprise level.
4. Is a SaaS contract management tool necessary?
As SaaS contract management is integral to a business’ operation, having a reliable tool will help ensure that essential contract details are considered so that the services stay uninterrupted.