SaaS applications have become an integral part of modern businesses. Feature-rich SaaS solutions streamline workflows and help tech startups become more competitive.
However, this convenience also has an alarming aspect that every startup owner must look at.
Research shows that over 30% of SaaS budgets are wasted due to bad negotiation, pirated solutions, or poorly defined SaaS agreements. Managing multiple SaaS contracts is a tough job. Companies using various SaaS applications often struggle to leverage these solutions to achieve their desired objectives.
How to overcome this challenge. The solution is a SaaS agreement checklist.
SaaS agreement checklist refers to essential components that must be included in a SaaS contract. These components are determined based on the nature of the business and the expectations of both the employer and SaaS provider.
A well-defined SaaS agreement contributes to business growth, shortens the SaaS development cycle, and enhances user experiences.
This article discusses five essential elements of the SaaS agreement checklist to make these contracts more useful and sustainable.
Let’s explore:
What is a SaaS Agreement?
A SaaS agreement is a legal contract between the customer and a service provider. The agreement defines the terms and conditions regarding the delivery of cloud-based solutions over the internet.
The primary objective of a SaaS agreement is to clarify the rights, responsibilities, and obligations of a service provider and the customer. It is a guideline that discourages risks and defends one party against another in case of disputes. Without a well-defined SaaS agreement, companies often face fuzzy terms, legal pitfalls, and operational confusion.
Consider two real-world examples of SaaS agreements with Salesforce and Microsoft 365 to better understand this concept.
An agreement to subscribe to a subscription-based CRM service with Salesforce defines access to various features, uptimes, etc. Besides, this contract clarifies guarantees, also called Service Level Agreements (SLAs), and data privacy policies.
Similarly, Microsoft 365 is another SaaS subscription service that allows users to access productivity tools like Word, Excel, and Outlook through cloud computing. Microsoft’s SaaS contract will outline user rights, data storage limits, and terms of termination or renewal.
5 Crucial Aspects of the SaaS Agreement Checklist
When signing a contract with a SaaS provider, make sure to include these five elements in your SaaS agreement checklist:
1. SaaS Contract Dates
The most crucial part of a SaaS agreement is the start and end date. They define the relationship between the service provider and the customer. Besides, contract dates influence several aspects of the agreement such as payment schedules, renewals, and final delivery.
Start Date: This is the date on which the customer gets access to the SaaS application. The service provider must ensure that the software is ready by this date so that the user can use it to perform different operations. Most service providers provide also a “grace period” whereby the user accesses the software before the official commencement of the agreement.
End Date: The end date marks the end of the existing term in the SaaS contract; renewing or renewing it will bring in a new effective date. It plays a critical role in allowing both parties to clearly understand the process of either service termination or its renewal procedure.
Pro Tips:
- Always ensure the start date coincides with when your team can start using the software.
- Know there’s an auto-renewal, which will save you from surprise charges
- Clarify if there are ramp-up periods in which the capability of the software may not be available at full capacity.
2. User Access and Rights
User access, together with their entitlements, defines how the employees or end-users of an organization are going to interact with the SaaS product. This component of the agreement stipulates the number of users that can access the software. Likewise, it also defines the features or functionalities made available, and whether it is based on role or the organization as a whole.
The SaaS contracts automatically include a multi-tiered access system. Administrators can have completely exclusive control over the functionalities of the software. However, regular users get limited access to specific features or outright exclusion from certain parts.
Managing user access is one of the best ways of holding sensitive information by restricting access to unauthorized users.
For instance, a company purchases licenses of Adobe Creative Cloud by buying licenses for users or teams. The SaaS agreement details how many users can access an application. Besides, it outlines whether the access is assigned to an individual or transferrable across organization departments.
If the business exceeds the user limit, they will have penalty charges or extra charges.
Important Considerations on User Access and Rights
- The number of users allowed under the agreement should be sufficient for your team.
- Determine provisions that allow for different types of access depending on the role within a company.
- In certain SaaS contracts, this is not transferable, and when that employee gets terminated, you cannot use that license with someone else.
3. Data Usage and Ownership
The most valuable asset of the SaaS model is the definition of data ownership and the ways customers’ data will be used. Both these are important factors because users are likely to have disputes over data ownership. These disputes, if not handled properly, can result in legal conflicts and security concerns.
Hence, knowing that sensitive information is submitted to a SaaS provider on behalf of a business means clear data ownership definition and usage provisions.
Data Ownership: The terms of the agreement should clearly define who owns the data created or uploaded into the SaaS application. Usually, the customer retains all rights to the data. However, the SaaS provider may have limited rights in the processing required to deliver their services. In the absence of clear definitions, such ambiguity could potentially arise, especially if the provider intends to make use of anonymous data for analytics or service improvement.
Data Usage: The terms must define what, by the permission of a SaaS provider, the data will be allowed to be used for. Is it all right for the provider to use the data for marketing, research, and product development purposes? Issues regarding whether the data is shared with third parties or used for purposes other than service delivery must be part of the third section.
Data Retention and Deletion: The contract should also state for how long the provider would maintain a customer’s data after ending and under what circumstances it will be deleted. For instance, following the end of a contract, some providers keep data from their customers for a set period after which it is completely deleted to allow customers sufficient time to backup or shift their data.
Important Considerations
- Ensure that you own all the data that you upload or generate.
- Check how the provider is authorized to use your data—particularly in terms of marketing, analytics, or even third-party sharing.
- Be able to export data in a standard format so that you’re not locked into one provider.
- Review retention timelines and procedures for data deletion after termination.
4. Total Value of the SaaS Contract
Finance is the most significant aspect for both parties in a SaaS agreement. The total contract value (TCV) refers to the lifetime a customer will eventually pay for the value of the contract. Knowledge and negotiation of this section ensure businesses exactly know what they are being charged for, avoiding mostly unnecessary expenses while effectively budgeting.
Key components of a TCV include:
Subscription fees: This is the straight-up fee charged by the SaaS provider monthly or yearly basis.
Usage-based fees: Few SaaS agreements charge fees based on usage metrics like the number of active users, storage capacity, or volume of data processed. This is very common in cloud storage services, like AWS or Azure, in which usage is proportional to pricing.
Support and maintenance fees: Many SaaS providers offer premium customer support packages that extend beyond the minimum level. These fees are usually add-ons and should be added separately in the agreement.
Onboarding fees: Almost all SaaS services, especially more complex systems such as ERP, often charge one-time fees that would help the system to be actually deployed and established.
What to watch out for in a TCV:
- Break down all the elements of the total contract value in an attempt to avoid some shady surprises through hidden fees.
- Calculate long-term renewal price and price of price escalations
- Review usage caps and overages
- Consider the benefits of price protection in exchange for contract lock-in
5. Service Level Agreement (SLA)
The Service Level Agreement (SLA) defines the performance metrics that the provider commits to delivering on. These typically involve uptime guarantees, response times if a support request has been raised, and remedies should they fail to meet these commitments.
One of the most important components within an SLA is the uptime guarantee, which describes the hours the software will be up and running. Uptime is usually expressed as a percentage.
For example, Google Cloud offers a 99.95% uptime SLA, meaning that if it does not provide this level of service, then the customer is probably more than likely entitled to service credits or money back.
The SLA also indicates how long it takes for the provider to respond to support requests from the customer. The contract should clearly identify remedies that the customer will have in the event of a violation of the specified performance standards by the provider as defined in the SLA.
Key Takeaway:
- SLAs must include a good uptime guarantee suitable for your operations.
- Analyze the provider’s response times for different levels of requests for support.
- Find guarantee remedies, such as service credits, where the provider fails to meet the performance standards set.
Final Thoughts
A well-defined SaaS agreement is the bedrock for good relations between SaaS providers and their customers. The agreement ensures that both parties meet their inherent expectations and fulfill their responsibilities.
Besides, SaaS agreements give guarantees of remedies due to clear service performance, cost, data security, and termination policies. For startup owners, understanding the core elements of a SaaS arrangement determines long-term business growth and operational success.
Therefore, every tech startup must pay attention to the five key components of the SaaS agreement checklist. These include SaaS contract dates, user access and rights, data usage and ownership, total contract value, and service level agreements.
Considering these aspects will ensure the employer understands the importance of a well-constructed agreement and better leverage this model for long-term sustainability.
