What is SaaS Contract Management: Clauses, Mistakes and Best Practices

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January 19, 2023

SaaS contracts contain critical information specific to the software agreement, and it is essential to keep them secured and easily accessible for audits and re-negotiations.

How you manage your contracts will be a significant factor in determining the success of your business. That is why software-as-a-service (SaaS) contract management is a critical component.

To answer your questions about this crucial topic, we will explore the essential aspects of SaaS contract management, from what it is to why it's necessary to your organization.

We'll also discuss the mistakes you should avoid and the best practices in SaaS contact management. Follow along as we delve deeper into SaaS contract lifecycle management.


What is a SaaS contract?

A SaaS contract is a legally binding agreement between a business and the service provider that describes the terms and conditions of the SaaS services being provided.

The contract provides details on how the user will access a given piece of software. This software is typically delivered over the internet and accessed by users through a web browser.

The contract must provide detail on the responsibilities and rights of each party. It must be legally binding to ensure everyone is protected and adheres to the necessary guidelines.

What are the clauses included in SaaS contracts?

To have an effective contract, these clauses should be included.

Service Level Agreement (SLA)

This clause outlines the service that the SaaS provider will commit to delivering and what happens if they fail to meet those standards.

The buyer and the vendor must agree on the performance standard to use. Service availability is also one of the critical issues covered in the SLA. The SLA should include information on the following essential issues;

  • The uptime percentage
  • Response time of the support
  • Compliance
  • Key performance indicators
  • Penalties

In some cases, the SLA may be a different document to ensure all these factors are covered in detail.

Limitation of Liability

Though the SaaS vendor is responsible for the services offered through the software the customer has requested, there are situations where the provider will not be held liable for the damages and losses.

The only condition that has to be met for the customer to consent to such regulation is that the vendor must clearly show that the given risks and threats are beyond their control.

The limitation of liability may also set the maximum amount of money the vendor will be willing to pay the customer for given losses. In most cases, these are risks for which the vendor is partially responsible.

Data Security and Ownership

The SaaS provider has to provide details on how they will use the collected data and what they will do to ensure its protection. To ascertain the level of accountability, the service provider will have to give details on the risk management process to be used.

To avoid conflict between the vendor, buyer, and users, who owns which data must be established in the contract. The clause allows the contract to explain the flow of information once users upload it to the storage. Security restrictions are also outlined in this clause.

How the vendor will use the data must be clearly defined from the beginning. The sharing of data has to be done according to the contract. This section allows the buyer to restrict how the data collected from users is used and shared by the provider.

Customer Support

This clause provides details on how the customers can access help from the vendor.

The vendor explains the resources available for helping customers, which may include

  • Well-detailed answered FAQS
  • List of self-help content
  • Trained customer support agent (In most cases, they are available 24 hours)

This clause should never be missing from a SaaS contract because it provides details necessary to ensure customers' satisfaction using the software provided by the vendor.

Scope of License

Since licensing is for the services offered, there need to be terms that define the limits of the rights given to the users. The contract must provide specific details on the following:

  • The facility and accessibility of the services offered
  • The purpose or industry of use
  • The duration of use
  • Nonexclusivity of the users' details on the software.

The above details make the scope of the license a significant clause in the SaaS contract, making it clear to the customers that the vendor is only offering services through the software. The ownership of the software is not transferred to the customer.

Subscription Plan and Pricing Models

The contract has to elaborate more on the subscription plans offered by the vendor. Each plan will have different services depending on the customer's budget. This clause has to cover the following.

  • Pricing model, which may include
  • Flat rate,
  • Pay per user
  • Pay per usage
  • Pay per feature
  • Tiered pricing
  • Payment schedule
  • Amount to be paid at the beginning of each cycle
  • Services per subscription

The vendor may allow the customer to pay monthly or annually.

In some cases, they may even be quarterly payments.

Some vendors also allow customers to test the services during a free trial period, typically 7, 14, or 30 days. Customers can purchase the product for a pricing plan that suits their needs.

Term, Renewal & Termination

In most cases, SaaS buyers prefer longer terms, as vendors are more likely to provide discounts if the term is more than one year.

Renewal dates should be clearly defined, and termination clauses should be mentioned in the contract. Some SaaS vendors will include penalties if the agreement is terminated before expiration.

Ensure all these clauses are mentioned in the SaaS contract to avoid later hassles.


What is SaaS contract management?

As the name suggests, it is the activity of managing contracts of SaaS applications delivered by vendors.  

SaaS contract management entails all aspects of contract lifecycle management for SaaS products, from negotiating SaaS contracts and drafting the initial agreement to ongoing monitoring and administration throughout the contract term.

The goal is to help ensure that the SaaS product meets the customer's needs and that both parties comply with the terms of the agreement.

As SaaS contracts hold sensitive information, it is essential to keep them in a centralized and secure location and not in employees’ inboxes or shared folders. This makes data retrieval during re-negotiation or auditing easy.


Why is contract management important for businesses?

An effective contract management process can save your company time and money by streamlining the process of creating, approving, managing, and tracking contracts. It can also help prevent costly mistakes by ensuring that all terms and conditions are properly negotiated, documented, and stored.

For example, if you're negotiating a SaaS contract with a new vendor, a contract management system can help you carefully review, compare, involve various stakeholders and approve the terms to ensure that they are fair and favorable to your company.

These are some of the benefits of having an ideal process in place, as it helps in,

  • Making sure that all parties understand the contract terms and conditions.
  • Putting together a plan for managing changes to the contract.
  • Securing and storing the contracts in a centralized inventory.
  • Increasing the speed of collaborating, negotiating SaaS contracts, and signing them.
  • Making the sharing process effective for businesses. Once the contract is verified, one can easily share it with the relevant shareholders. This feature also enhances the reviewing of the contract because many people are involved in the process.


What is the ideal SaaS contract management process?

The ideal SaaS contract management process will vary depending on the specific needs of your business, but there are some general steps to be followed.

Step 1. Initiation

This is the first step in managing SaaS contracts. A business will often not start the contract lifecycle from scratch. In creating the contract draft, the team will begin with other agreements from the same industry or offering. The teams must know the business needs to select the most appropriate template.

A survey by Docusign on SaaS contract management showed that many businesses do not restrict themselves to using one tool in the contract generation process.

This is an indication that most businesses are embracing new technology. If the management or the stakeholders are slow in adopting technology, the process will become lengthy and tedious.

A company can easily take an old template and edit it to create a new contract. At this initial stage of the life cycle, it is essential to ensure that mistakes are not made. Some careless errors in this stage include copying dates and addresses that are supposed to be different in the new contract.

With contract management software, businesses can build better templates that can be customized from time to time based on the requirements and vendors.

Step 2: Collaboration

The contract management process requires the input of many professionals, such as

  • Lawyers
  • Human resource managers
  • Sales representatives
  • Finance officers
  • Purchase and procurement managers.

All these people can work on the same document through the sharing features provided by the contract lifecycle management software. This is an excellent feature, especially when team members have to meet regularly but are in different locations.

The business may also incorporate consultants on a short-term basis to provide additional expert help. The consultants can then report to the top managers for their input on optimizing the SaaS contracts.

Different team members will provide opinions concerning the terminologies used to ensure there are no ambiguities. A contract with terms in multiple contexts will not be effective because it will lead to potential bias from the person interpreting the content.

Since this is a continuous process that requires multiple changes, online sharing of the contract allows for real-time alterations to make the process more efficient in terms of the time taken to implement a suggestion.

Step 3: Negotiation

Once the mistakes are identified and rectified, the teams involved will negotiate until they come to terms.

This stage of the contract management lifecycle takes a lot of time because changing one area means that other sections must be reviewed. It can also mean hiring more experts to help restructure the contract if the disagreements are aggravated.

The negotiation time can be reduced substantially through a process involving constant information sharing.

Step 4: Approval

New technology allows businesses to use e-signatures. There is no need to have hard copies, thus making the process quicker and smoother.

A cloud-based contract lifecycle management platform allows different people to approve a contract simultaneously, even from different locations.

A system will allow all the respective stakeholders to verify the documents simultaneously and take collaborative decisions to fasten up the agreement process.

Step 5: Tracking

This stage involves tracking and analyzing contracts to make informed decisions and mitigate risks.

SaaS contract management systems can be handy for modernizing legal departments and improving legal operations within a business.

By creating contract data, information, and analytics dashboards, businesses can monitor their legal performance and make informed decisions immediately.

Step 6:  Audits and Renewals

Approval is not the end of the contract lifecycle management process. A business must conduct regular audits to check how each party performs concerning the specified obligations.

Also, the same SaaS contracts will be used for renewals too, so it is essential to have a centralized inventory for safe and secure storage so these contracts can be identified easily whenever needed.

A SaaS contract management system can centralize all the contracts and create renewal workflows based on the agreement. This workflow will begin the renewal process 90 days in advance to ensure that you don’t miss out on it.


Common Mistakes To Avoid During a SaaS Contract Creation Process

Now that we have covered the contract management process, we will now give you a list of mistakes you should avoid in this process,

  • Avoid focusing so much on the software at the expense of the service. You should always pay attention to the services such as data protection and customer support.
  • Do not use templates that do not align with the type of service you are providing. Some templates may be misleading, thus requiring so much time to make corrections.
  • Do not use general quality indicators. Available indicators make it difficult to prove that a party has failed to perform. This means seeking damages will also be equally challenging.
  • Do not use ambiguous statements. Avoid the use of language that may bring contention when the parties are interpreting the meaning.
  • Pay attention to the importance of having a qualified lawyer. This is a common mistake in many businesses, especially when renewing contracts.


SaaS contract lifecycle management best practices

Here are some tips you need to follow in SaaS contract lifecycle management,

  1. Establish a detailed system of records. These records will help monitor, track, and audit the SaaS contract.
  2. Check the auto-renewals. This may help you upgrade or downgrade subscription plans based on your usage. This will help in ensuring that you do not pay for the services you no longer need at a given time.
  3. Always use invoices to protect all parties.
  4. Get more information on the services offered and the usage limits.
  5. Make sure there is a way out. Do not get into an agreement that will cost you a little when you want to opt out.
  6. Make use of specific key performance indicators. The KPIs defined within a contract will determine the type of services you get and the level of excellence attached to them.
  7. Keep track of obligations. As discussed, the SaaS contract does not end with approval; you need to be keen on the commitments the vendor must meet.
  8. Make sure that team collaboration continues beyond the creation stage. The legal department must work with other teams to ensure effective implementation and review of the contract.
  9. Ensure that you use a contract management system to create, store and manage your SaaS contracts; spreadsheets are more prone to security breaches.


How Can Businesses Benefit From Effective SaaS Contract Lifecycle Management?

An effective SaaS contract lifecycle management will help you in the following,

Never miss out on renewals

It makes the contract renewal process easier to track and manage. There will be few interruptions because this process involves safeguarding and managing sensitive documents and collaboration with multiple stakeholders.  

The business will also be less vulnerable to overcharging as renewal workflows begin 90 days in advance and ensure that it is renewed on time.

Contract creation is easier than ever

Effective contract management will set the best standards for contracts. As a result, there is no need to create a contract from scratch each time; instead, teams can simply reuse the best-performing templates.

Share it quicker to get them reviewed

Contract management systems make sharing easy; you can easily create and share your contracts with the stakeholders for their review and approval.

With an effective management plan, the teams will know what to review and whom to contact to get the necessary changes verified and approved. The process just gets quicker.

Store them in a centralized location for easy access

A business will be involved in hundreds of SaaS contracts, and often these contracts will get lost if you store them in a decentralized manner. But a platform solves this problem with a centralized inventory and easy document retrieval features.

Easy contract review and auditing

Reduce the time and resources required in formulating and reviewing a contract. With an automated process, finding the details you need in a contract becomes easy. You can quickly scan the contract using key terms and save time.

Secure storage with backups

Cloud-based contract management systems are secure, unlike spreadsheets or other manual tracking methods. You can easily create backups and keep them safe in a cloud environment, which is faster than spreadsheets.


How to simplify the contract management process using a tool

SaaS contracts hold sensitive information, and to manage them effectively, you need contract management software like CloudEagle.


CloudEagle's SaaS contract management dashboard


It is a SaaS management software that can manage SaaS contracts in a centralized inventory and make contract audits and data retrievals easier.  Here’s how CloudEagle simplifies contract management,

Tracking Renewals

The contract renewal workflow makes CloudEagle different from other SMPs. Instead of sending email reminders, this tool initiates renewal workflows 90 days in advance and escalates them to the respective stakeholders until the contract is renewed.


Renewal workflow from CloudEagle


Consider it more like renewal guidance than renewal reminders. This system ensures that you don’t miss your renewals or face the hassles of auto-renewals.

Easy data retrieval and secure storage

You can store your SaaS contracts in one place; this will significantly reduce the trouble of finding the contracts during re-negotiations or when a renewal closes.

Retrieve all necessary information, like contract value, billing frequency, renewal date, and more, from the SaaS contracts easily. All you have to do is just search for the contract, and you can start extracting the details.

SaaS management

CloudEagle does more than just manage SaaS contracts—it offers a plethora of functionalities to manage your entire SaaS lifecycle.

Here’s a quick rundown of the features,

  • Get 100% visibility into your SaaS stack. Leverage accurate app usage insights and re-negotiate your SaaS contracts.
  • Manage your entire vendor lifecycle and improve relationships with them.
  • Automatically provision and de-provision users to the apps.
  • Identify and optimize hidden, underused, and duplicate apps.
  • Eliminate the hassles of negotiations with assisted buying experts.
  • Find the right vendors for your business using the AI-powered vendor recommendation engine.
  • Streamline your procurement process with automated workflows.

A SaaS contract includes all the details, from SaaS app usage to vendor information and contract negotiations to procurement.

To simplify the contract management process, you need a comprehensive tool that covers the entire SaaS lifecycle, making CloudEagle the best solution.


Conclusion

SaaS contract management is essential to ensuring the success of your business. It becomes hard to keep up with all the regulations that require auditing and scrutiny.

Consider using a software for contract management to achieve more in less time and at a lower cost. The software will help you keep track of your contract so that you can give more time and attention to your business.

In this article, we discussed the ideal process to manage SaaS contracts, the mistakes to avoid, and how beneficial it is to manage SaaS contracts.

Also, we talked about the benefits of a contract management system and why CloudEagle is the best solution to manage SaaS contracts and renewals and save on SaaS spend.

“Tracking renewals through CloudEagle’s workflow has eased things up for us. "I am no longer spending time chasing others for status updates on their tasks; instead, we're getting more productive work done, leading to real savings.”

Sophie Wang, WeFunder.


Frequently asked questions

1. How can an organization ensure compliance with SaaS contracts?

Ensuring SaaS compliance is necessary and can be quickly done using a contract management system. This system will constantly check the terms and conditions to ensure they comply with the guidelines.

2. What is a SaaS contract management platform?

It is a tool used by businesses to centralize their SaaS inventory and effectively manage their SaaS contracts.

3. How do I select the right SaaS contract management system?

Choosing a SaaS contract management tool can be challenging if you don’t know the requirements and have a poor understanding of your SaaS budget. A SaaS contract entails multiple pieces of information, ranging from terms and conditions to vendor information. It is essential to consider all the factors when choosing the right SaaS management platform.

Joel Platini
B2B content writer and marketer.

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