SaaS agreements: What to know before signing the dotted line
- SaaS agreements define the legal commitments between you and your suppliers in definite terms, so you know exactly what you’re paying for and what performance you can come to expect from them.
- SaaS agreements are significantly different from license agreements.
- SaaS agreements typically grant specific usage rights to SaaS customers, and license agreements have a wider scope that grants users access to the supplier’s IP, patents, trade secrets, etc., to customize as the need arises.
- SaaS agreements cover some key definitions such as access rights, customer support provisions, data ownership and protection, pricing, and liability limitations.
Whether you're buying Notion, Asana, or Todoist, signing up for a B2C SaaS subscription is a pretty straightforward experience. You select a pricing plan, key in your card details, accept the terms and conditions, and voila! You're signed up.
While it's an often overlooked part of the B2C SaaS subscription flow, SaaS agreements are fundamental to building consensus between B2B SaaS suppliers and customers before signup and during the course of the subscription. They also provide a guideline and grounds for offboarding, if need be.
SaaS agreements lay out the provisions under which a software supplier offers your organization access to their product and anticipates how the supplier-customer relationship will operate going forward.
In this article, we'll dive into the essence of SaaS agreements for B2B subscription services, touching on what they are, how they are different from licensing agreements, and the important clauses you don’t want to overlook.
Understanding how agreements affect SaaS contracts will help you license software seamlessly, stay compliant, and maintain your organization's SaaS needs.
What are SaaS agreements?
SaaS agreements define the scope of the customer-supplier relationship and specify the terms and conditions both parties are liable to abide by. They function as legally binding commitments your entire organization needs to maintain to retain continued access.
How are SaaS agreements different from licensing agreements?
In the world of procurement, it's easy to equate SaaS and licensing agreements.
Both of them are commitments made between SaaS providers and users to adhere to defined rules. And to a certain degree, SaaS and license agreements function similarly, but the key difference between both is in the vehicle of delivery.
To understand the difference between both, we need to define each individually.
A software license agreement grants the customer limited access to the licensor's copyrights, patents, intellectual property, and trade secrets, all built into the supplier’s product, to tweak and utilize as required. For instance, a license agreement could grant a licensing organization authorization to host software locally and modify it for their unique use cases.
On the other hand, SaaS agreements often offer clearly defined access rights for users to utilize a software product as-is. Users across your organization get to log in and use the product just like it's delivered, without accessing the SaaS supplier's source code, intellectual property, etc.
SaaS and license agreements function similarly, but while the latter caters to purely SaaS scenarios (i.e., as-is use cases), license agreements give purchasers more extensive authorizations over the SaaS product and bring on more risk to match.
Key clauses in SaaS agreements
Like you're already aware, SaaS agreements aren't a huge block of text saying, “Pay us, and don't try to hack our database,” with a dotted line at the end.
Before there can be an agreement, there must be certain terms and conditions carefully laid out defining the rights and obligations of both parties. These include:
- Access rights
- Customer support provisions
- Data ownership and security clauses
- Limitations of liability
- Service level agreements (SLAs)
- Term, termination, and renewals
Put together, these define just how much use you're getting from a SaaS product and what you should abide by for the term of your usage.
Some of these agreement clauses are often overlooked by procurement professionals and eventually lead to ballooning costs as well as a lot of back and forth ironing out provisions that should have been clarified right from the start.
Ideally, a SaaS agreement should clearly define under what terms you're allowed to use the supplier's software, stating whether you own the software, and under what terms your organization can access it.
This includes defining what constitutes a license, an end user, or a seat, and how many users are permitted to utilize a license or a seat. Access rights are one of the big clauses to keep an eye out for since they determine how much usage you can get out of a SaaS service and how much you'll end up paying for it.
Customer support provisions
When you're using a B2C software (say, an app) and you come across some intractable bug that doesn't get fixed despite your complaints, you can simply download an alternative.
When you're dealing with B2B software with tens, hundreds, or possibly even thousands of users across your organization, it gets messier. You can't just back out of a contract, offboard everyone in a heartbeat, and immediately get them using an alternative.
That's why it's best to keep an eye out for every SaaS provider's customer support policy, especially in the SaaS agreement.
- How much priority will enterprise bugs receive?
- How quickly will bugs be resolved?
- Will you stay looped into the development process to ensure the issues you report are getting fixed?
Even if a product is generally OK, if your supplier can't guarantee a decent level of support with technical and documentation issues, you're bound to run into major hitches in the future. A SaaS agreement should define a customer’s right to ongoing support services, either on-demand or at the supplier’s discretion.
Data ownership and security
A SaaS agreement should clearly specify who owns the customer data, how it's defined, processed, and stored, and most importantly, if and what use the cloud service provider is permitted to get out of it. This includes a snapshot of the data processing protocols a SaaS provider adheres to, such as GDPR and CCPA.
Depending on the sensitivity of data you’ll be processing using a SaaS product, you need to ensure that every SaaS agreement defines stringent data protection provisions for protecting their customers’ corporate and personal data.
When you're signing up for B2C SaaS, you head to their pricing page, select a plan, pay up, and you're all set.
For B2B, a SaaS agreement should clearly define how much you're paying per license, how many end users constitute a license, how often you'll be billed, and any special pricing arrangements such as volume discounts, etc.
Indemnification and limitation of liability
A SaaS agreement should define terms for indemnification and liability protection, with clear limits of obligation in force majeure scenarios where you can’t keep your contractual obligations due to circumstances beyond your control.
For instance, say hackers have access to an account licensed to your organization and use it to bring down the SaaS provider's product or cause more widespread damage.
A liability limitation clause helps define how much you're on the hook for, establishes force majeure waivers, and saves your company from going down for circumstances beyond your control.
Service level agreement
An SLA defines the minimum required performance metrics a SaaS product should deliver, including uptime, back-up, maintenance, bug fixing, as well as remedial terms that'll apply if any parts of the SLA aren’t met, such as in the event of downtime, etc.
Term, termination, and renewals
Not only should your SaaS agreement spell out how much functionality you're paying for, but it should also define the term of your contract, provisions for termination, and renewal terms for the future.
Some questions that'll help you clarify include:
- Under what terms can you terminate a subscription? For instance, if the SaaS provider doesn't meet the terms defined in the SLA, does that authorize you to terminate your subscription? Do you need to provide written notice, and will you get a refund of your subscription fees?
- After the contract runs its course, can you renew at your existing price, or can the SaaS provider slap on a higher renewal price?
A good rule of thumb when reviewing SaaS agreements is to take nothing for granted. Proactively analyze every clause to ensure its terms are favorable to your organization, now and in the future.
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