SaaS agreements are a necessary part of the business process. When done right, all parties are protected. But if done wrong, the consequences can be costly.
For example, bad SaaS contracts can lead to litigation. With litigation comes diverted resources and focus. Bad SaaS agreements can become more costly while reducing productivity.
To help you avoid being surprised by a SaaS contract’s terms, here's how to create, review, negotiate a SaaS agreement — from understanding your company’s needs, to ensuring that an agreement’s terms and conditions meet those needs:
Unlike with SaaS agreements, under a software license agreement, companies physically install software and sometimes hardware. With license agreements, vendors grant customers rights to copy and use the software to protect a vendor’s interests. These can be things like copyrights, patents, and intellectual property rights.
But with a SaaS agreement, the subscriber receives a service without installing anything anywhere. In other words, a SaaS provider only permits a customer to use the software and no hardware is necessary.
Not all SaaS agreements are the same. Different types are created to address different areas of the business and how each interacts with stakeholders both in and outside the company. Here are the two general areas to consider when thinking about the SaaS agreements you may need that go beyond your typical customer agreements.
These types of agreements are typically internal. They outline the SaaS relationship between you and your employees or stakeholders. Company-level agreements are often used to protect intellectual property.
Some examples of company-level agreements are:
Customer agreements are there to outline your relationship with customers as a service provider. For example, a service agreement outlines what services your customer should expect from the product you provide.
Here are some examples:
SaaS agreements establish the vendor and customer relationship in writing so both parties know what to expect from each other. Should either party forget, or if new people become a part of one of the parties, they can reference this record for clarity. You and the SaaS vendor should get what you want out of your new relationship in either case.
SaaS agreements vary based on industry, product, and service. Moreover, specific clauses can adjust a contract to a customer’s unique needs. But most SaaS service agreements will share similar terms and conditions due to vendors delivering them via a cloud service. Below is a list of those terms and conditions and what questions to ask.
☐ Access rights and users:
☐ Customer service and support:
☐ Data ownership:
☐ Data security:
☐ License scope:
☐ Limitation of liability and disclaimer of warranties:
☐ Performance objectives:
☐ Service level agreement (SLA):
☐ Subscription plan and model:
☐ Term(s), termination, and renewal clauses:
While you can potentially negotiate for every clause in a SaaS agreement, CSO Magazine recommends “5 best practices for negotiating SaaS contracts.”
Here’s our summary of these practices:
Consider how your company will use the service. For instance, will you use it internally or externally? Also, will your customer data reside on the vendor’s platform? And if so, do they have all relevant security and privacy policies in place to protect the data?
Do you know who the stakeholders are? If so, do you know if they’ve been involved or considered from the start of negotiations? What are the non-negotiable security items?
Possible stakeholders can include:
Vendors might only offer certain protections based on their physical and non-physical limitations, but you could still negotiate on the insurances and which cybersecurity events they’ll cover.
When it comes to regulations like the General Data Protection Regulation (GDPR) and Payment Card Industry (PCI), notifying customers within a specific timeframe of a security incident is a must. So negotiate with the vendor to include provisions for breach notifications.
Ensure your rights to reclaim your data. Will you need a transition support clause granting you extra time to move to another service provider? If so, include it. Also, ensure the SaaS vendor deletes all of your customer’s data from their infrastructure.
To protect your company, its interests, and its customers’ data, you should always use a SaaS agreement when procuring a software service. Any reputable SaaS vendor will require one.
It doesn’t matter if you create SaaS products for baby showers or you provide software services in the healthcare industry. It’s always a good practice to protect the interests of all parties involved with legally binding and clearly outlined SaaS agreements.
Creating a solid SaaS agreement involved getting clear on a few key guidelines first. Though there isn’t a one-size-fits-all SaaS template you can use for every agreement, they each generally contain an array of key SaaS usage information worth outlining.
If you're a SaaS company who is developing your first SaaS agreement, here are the steps you should follow.
When creating a solid SaaS agreement, you want to thoroughly describe the services you offer within the agreement. You’ll want to determine how detailed you get with the services you provide. Think about pointers like:
Thinking through these questions can help you capture and describe key components of your software services that should be included in your SaaS agreements where appropriate.
It’s important that you clearly outline how you’ll use the data you collect from your users. Ensure specifics like:
Laws and requirements can vary by state, so it’s important to consider consulting with privacy lawyers to ensure you stay compliant with the data usage laws in your state. This is also a great way to know what lawful usage of customer data is for your SaaS product so you can collect and use data accordingly.
The access clause — the specification that defines the limits of what users can do with your SaaS product — is a vital part of the agreement you create with your customers.
The access clause needs to be thorough and specific about what permissions your customers get. This way there’s no gray area left to interpretation that could be vulnerabilities in case of legal action.
Outlining a detailed access clause also helps protect your company from liabilities. In the case that your software is misused by any party, you’ve clearly outlined your access terms and stay clear of being implicated negatively in a legal scenario.
How well can you guarantee your product will work? On the other hand, maybe you don’t offer any type of warranty. Either way, ensuring that you are clearly defining what your warranty clauses are is an important part of your SaaS agreement.
Your warranties can be as specific or as general as your SaaS product dictates. For example, you might promise a 99.99% uptime if you work in an industry that demands it as a critical part of their line of work.
Yet, a more general warranty might just do the job of stating that your SaaS product is expected to work at industry-appropriate levels. The clearer you are about your warranty and its limits—or lack of one—the more you avoid potential legal dilemmas down the road. This leads us into liabilities and how to define those within your SaaS agreements.
If a customer purchases access to your SaaS products, they can have expectations on how well the product works that may be legally protected. Say your SaaS product doesn’t work up to your customer’s expectations. In a worst case scenario, they can seek legal actions for “damages” caused by your product.
However, addressing these potential liabilities in your SaaS agreements largely cuts down the amount of legal action any one user can take against you. In your SaaS agreement, customers can agree to limit their future legal claims against your software company.
Just about every SaaS product has to limit their liabilities to protect themselves. This is why it’s necessary to consult with your legal team and make sure that you’re protected in case of any legal action.
Additionally, a governing law specifies which country’s laws your software agreement is protected under. This is an important piece of the puzzle that must be outlined when you your SaaS product serves customers outside of the country you operate in.
Stay on top of your contracts, never miss a renewal, set up an approval process that works, and keep spending under control. With Vendr, you’ll be able to:
Looking to better manage your SaaS stack? Start with Vendr's SaaS stack template.
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