What are enterprise license agreements (ELAs)?

Contract Management

Enterprise license agreements could be one of the solutions your business needs to maximize profits and minimize SaaS waste.

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Vendr Team
Published on
December 6, 2022
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The explosion of SaaS offerings has made it difficult for companies to keep track of their various software licenses. As a result, it’s easy for companies to end up with duplicate or orphaned apps. This waste is especially evident if there is no clear protocol for processes like procurement and employee on- and offboarding.

Could enterprise license agreements be one of the solutions your business needs to maximize profits and minimize SaaS waste?

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What is an enterprise license agreement?

Enterprise license agreements (ELAs), also known as enterprise software licenses, are contracts between software vendors and customers. These software license agreements usually allow unlimited company-wide use at a discounted rate for a set period.

Some restrictions and limitations might apply, but an ELA can reduce the time and labor spent on SaaS license management if you use a provider’s software products company-wide at an enterprise-level firm. Also, it may provide the best pricing for your licensing agreement needs.

SLA vs. ELA

Every team uses between 40 and 60 SaaS apps. Understandably, keeping track of each software license agreement (SLA) can become cumbersome at that scale.

Addressing SaaS waste is where enterprise license agreements come in. Instead of managing each software license agreement independently, many software providers offer ELAs that cover subscriptions in a single deal.

The volume and specifics of each enterprise license agreement can vary greatly depending on your company’s needs, though there are some typical elements.

Contract period

Most ELA contracts span three to five years. However, many also include an ‘out year,’ also known as a gray year.

An ‘out year’ is an additional discounted year at the end of the ELA contract. Most software companies offer this year as an option. After that, you can sign a new ELA or revert to the total price for renewal and support.

License substitutions

Most ELA pricing agreements allow license substitutions so you can have flexibility as your company’s needs change and grow. Be sure the agreement clearly outlines the terms for exchanges.

Usage rules and restrictions:

The contract should outline user license agreements, copyrights, intellectual property, software, updates, and support guidelines. Plus, it usually includes pricing and the provider’s right to check for compliance.

What are the benefits of enterprise license agreements?

ELAs can save or cost you money, depending on how strategically you use them.

Understanding your company’s needs and the terms of the ELA can help you navigate one successfully.

Enterprise license agreements are more than just one-size-fits-all solutions, however. But if you anticipate your company’s continued growth, they could be a valuable asset worth exploring.

Some of the benefits that ELAs provide include

Reduced spending

Since you effectively pre-buy SaaS solutions for your foreseeable needs, most vendors offer significant discounts for ELAs.

However, keep in mind that you should have a good grasp of your software license management for ELAs to save money. Otherwise, ELAs will only add to your company’s SaaS waste.

Simplified software licensing management

When done right, enterprise license agreements can help companies return to business instead of spending precious time on proprietary software license management. In addition, they can help you consolidate multiple purchase and support contracts into one contract.

More accurate budgeting

Mismanaging your software licenses is a wasted spend. Using your apps above and beyond the terms of service can result in expensive true-ups and unexpected fines. ELAs can eliminate these issues with bundled contracts.

Improved efficiency

Management of a la carte licensing can sometimes cause business delays when annual licenses have unknowingly expired. Thankfully, ELAs can provide a streamlined way to keep parties involved agile and able to pivot as needed at any time.

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Enterprise license agreement best practices

While ELAs can help your company, they can cause more harm than good if not executed wisely.

Understandably, providers usually write contracts to protect themselves. But fortunately, you can also take steps to protect your company’s assets.

Here are some best practices to keep in mind to make sure an ELA works for you.

Clarify when deployment begins

I created a shared contractual definition of deployment. Does the license term begin as soon as you receive associated hardware, even before installation? Are you and the vendor on the same page to avoid conflict?

Have a consumption-tracking process

Have a system for receiving regular consumption reports from the vendor. In addition, you will need a protocol for regularly disseminating this information to IT, procurement, and asset management.

Software management often runs into issues because of a need for more cohesion among these teams. Enterprise license management is no different in this regard.

The IT team should check these reports for accuracy. End users with a first-person perspective must track consumption even with an external software license manager. Team members will be able to provide valuable insights into how the setup is working for your organization.

Ensure you have a right to request audits

In enterprise license contracts, providers will ensure their right to onsite audits. Make sure you also have this prerogative. This safeguard will allow you to verify the vendor’s metrics on usage and deployment.

Make sure to outline substitution methodology and credits clearly

Find out what happens with software units you don’t deploy. Can they be converted into credits you can use on other offerings? Make sure to outline the specifics in your contract.

If you have had setbacks with true-ups and fines, an ELA can help by offering you the access you need at a significant discount. However, you should adjust the terms as soon as possible if your company is not even coming close to the ELA’s consumption limitations.

Other considerations

Be sure you enter an agreement that works for you and doesn’t contain burdensome limits.

If your company is growing, you’ll want to be sure there aren’t any clauses penalizing your organization.

ELAs should help your business operations become more effective. Work with the provider to develop the licensing program and pricing model that works for both parties.

Enterprise license agreements like Cisco’s True Forward reward your growth instead of penalizing it. If you have a good software license manager, your SaaS management can work hand in hand with your enterprise licenses. ELAs can help you spend less time on procurement, true-ups, and license renewals than traditional a la carte methods.

Enterprise license agreements can be valuable or detrimental depending on your company’s needs and your software stack’s visibility.

They can be a great asset to companies that expect to grow during the contract.

Still, they are only a good solution for some. Different areas of your organization may also benefit from alternative ELA structures.

ELAs are at least worth your careful consideration as you aim to create the most efficient systems for your company.

How SaaS management can help

With a SaaS management solution, teams can easily track software licenses, apps, people, and spending in one place.

With Vendr, you can upload contracts and integrate data into a secure source of truth that provides access to historical data and empowers you to track upcoming renewals proactively.

In addition, you can get a high-level view of SaaS spending across the org and deep dive into any supplier to understand specific usage.

Having a system of record provides consistency within ever-changing SaaS organizations and empowers more straightforward collaboration across stakeholders.

Vendr allows teams to input new SaaS licenses or import existing ones. It also integrates with vendors to sync actual content and user metadata into the system.

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Vendr Team
Vendr's team of SaaS and negotiation experts provide their curated insights into the latest trends in software, tool capabilities, and modern procurement strategies.

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