SaaS solutions are booming across industries as they are scalable, easy-to-use, and affordable compared to perpetual software. SaaS companies offer a legal software agreement that outlines the terms and conditions for their end users.
According to a survey conducted by Deloitte, 78% of SaaS users believe that their data is shared with third parties. This makes it critical to understand how a SaaS provider uses customer data and what disclosures they provide in the SaaS agreement.
Most individuals and companies overlook those details, but this missing information in the service agreement can cause chaos, including data protection issues, when managing multiple SaaS subscriptions. Therefore, it is essential to understand what to look for in a SaaS agreement and check the vital information that matters to your business.
Subscribers must know the terms they are accepting and manage the subscribed SaaS services efficiently. This post details the SaaS agreement terms and provides a comprehensive SaaS agreement checklist that will come in handy when you subscribe to a new tool.
What is a SaaS Agreement?
A SaaS agreement provides clarity on important aspects like intellectual property rights, confidentiality, limitation of liability, etc. that might impact your business directly or indirectly. Knowing these terms gives you an edge for better usage management.
Users should agree to the SaaS agreement and provide their consent before using the services. However, they need to read these policies while buying the subscription and note the changes in policies if some updates are made in the future.
According to Deloitte, 91% of Americans never read the agreement. Going through the critical aspects of the contract is vital because you or your team will use it for a long time, and the tool can access several business details. So, you must pay attention to such information to avoid any issues in the future.
Before we jump onto the ten most essential things to know in SaaS agreements, let’s first understand the difference between traditional software licenses and SaaS agreements.
SaaS Agreement Vs. Software License: Know the Difference
In a standard software license agreement, the company delivers the software to customers through electronic software delivery via the Internet. This software is generally available for lifetime use until the next version is launched when the user may choose to upgrade. Nonetheless, the user can continue to use the outgoing software version, typically until the end of support.
In contrast, when it comes to SaaS agreement, the subscribed users can access the software and other tools via cloud with minimal or no involvement of physical shipments and local installations. SaaS agreement also offers customers access to online tools, services, and products hosted on the cloud.
So, the SaaS agreement model allows software usage based on a cycle of subscription renewals.
A software license can be exclusive and non-exclusive to a specific geographic location, while a SaaS license is typically not limited to the particular region.
The conventional software license agreement often requires installing the software before using it. After the installation, the users need to configure the software based on their requirements and convenience. In contrast, the SaaS license agreement allows users to directly use the software through the cloud without installing or configuring it.
Why Do You Need a SaaS Agreement?
It’s essential to know how the SaaS vendor will use the personal and business data for their marketing or analytics purposes.
Some of the crucial aspects you need to check and understand in a SaaS agreement include the following:
- How does the vendor define the data collected and stored on their servers?
- How does the provider collect the data?
- The type of data collected and the duration for which data is stored
- Will the company erase the data once you stop using the services?
These are critical questions for which you need answers. Having a SaaS agreement helps subscribers know about data management and SaaS usage terms. Reading the cloud service agreement conditions before accepting them is a daunting task, but learning certain aspects enables you to manage them better.
SaaS Agreement: The 10-Point Checklist
1. Start and End Dates
The start date is when the SaaS agreement officially becomes active and comes into use. From the start date, the SaaS becomes available for use to individuals or companies.
The SaaS agreement’s end date refers to the renewal or termination of the subscription. It’s essential to keep track of start and end dates to help you manage them for an uninterrupted user experience.
Tracking the end date of the SaaS agreement is also essential for the sales teams to negotiate the contract upgrade or renewal terms. The sales reps can help companies to get the best value from SaaS subscriptions. Planning the renewal and negotiation strategy ahead of the curve is always profitable for companies.
Along with the end dates, it’s crucial to check whether or not the subscription is on auto-renewal. Keeping a check on this small thing can save you substantial money in the long run.
2. Access Right and Users
The next vital aspect of a SaaS agreement checklist is access rights and users. Most agreements cap the users that can access the software, and this limit or restriction varies as per the plan.
Most basic SaaS agreements come with only a single-user license where multiple users can’t use it as per the contract. While buying the subscription, you should know this parameter to save you a lot of money.
If you have more members in your team, you can go for an enterprise plan or ask the provider to customize the agreement as per your requirement. You might get a good discount from the provider.
Along with the number of users and data available, you need to check the penalties. For example, some SaaS companies impose a fine for violating the agreement laws and usage policy. In addition, the company may hold the rights to terminate or put the contract on hold for a certain period.
3. Customer Support and Services
While buying a paid service, customer support is essential to ensure a smoother user experience and get swift help in downtime. Before you opt for any SaaS, read their customer support and services clauses carefully. Some companies offer customer support via phone, some provide 24×7 support via email, and some companies offer both.
In the customer service section, you need to check how the company will provide customer support and their typical response time.
Response time matters, especially if there is a time zone difference between your area and the actual company location. Check if they also offer technical support to your company if you cannot access or use the software seamlessly. If the company offers some additional guarantee on the services, it’s always beneficial for your company and team members.
4. Data Ownership
Data ownership is a serious consideration with legal implications that you should never overlook while subscribing to any new SaaS tool. The SaaS agreement should clearly define how they collect the data and what the data ownership management looks like.
Data ownership is often a grey area as companies may show superficial information about their data collection and management clause while burying the details in the fine print.
A SaaS management platform can help you by highlighting all the critical points for knowing the accurate data ownership details. While skimming the agreement, it’s always good to look at how the SaaS provider stores and transmits the data. Also, check if there are any restrictions on data access.
You need to know how the software company will manage the data once the contract is over or stop using its services. Most companies keep their customers’ data even after the agreement is over for marketing purposes. So, you should know what kind of data the company is storing if they are using it for marketing purposes. As the service receiving party, you need to be careful concerning sensitive information such as patents, source code, trade secrets, and confidential information of customers.
In EU countries, data ownership has become streamlined amid GDPR compliance. However, in other countries, companies collect large data sets for various purposes.
5. Subscription Notification Length
SaaS agreement notification length is a critical aspect, and it often creates management trouble for the subscribers. Most SaaS companies will need notification if a user doesn’t wish for automatic renewal. For example, if your SaaS agreement outlines 30 days for the notification, then you need to inform 30 days in advance whether you wish to renew or not.
While managing multiple SaaS agreements manually, it often becomes time-consuming and cumbersome. Companies that don’t have a formal process for managing their SaaS agreements can face several issues in keeping up with the notification length and the recurring SaaS subscriptions.
Notification length of 30 days is the most popular duration, followed by 60 and 90 days in general. But, some SaaS agreements also have a shorter notification length of 15 days. On the other hand, some SaaS agreements have a notification period of 180 days or even more.
You can check your SaaS agreement’s notification length in the termination section of your tool, as it will help you manage the renewal better. When using multiple SaaS tools, it’s a good move to opt for a professional SaaS management platform.
These platforms take off the burden of manually managing the tools and let you focus on your core business. Even if you are using only a couple of SaaS, managing them through a dedicated platform helps you optimize SaaS contracts.
6. Total Contract Value
It is important to know the total contract value and the amount of money you pay for the complete renewal. The total contract value aggregates various financial obligations for every SaaS agreement across all business entities. Having a firm control over these details gives you an extra edge for SaaS agreement optimization.
There are often specific gaps between the initial contract commitments and the actual amount spent for the services. For example, if the existing contract shows a contract of $20,000 and the actual billing in the invoice is more than that, it’s essential to understand the reason for the billing surge.
There could be several reasons for the additional charge, including more active users than stated in the contract, overages, opt-in for new SaaS features, and more. Often, team members subscribe to a new service on a trial basis and forget to cancel it before renewal.
So, it’s recommended that you check and compare the contracts frequently and track over usage, additional features addons, and other price escalators.
Instead of monitoring the expenses manually, you can opt for the SaaS management platform to monitor the price changes. SaaS management platforms come in handy when your company is using multiple SaaS contracts.
7. Service-Level Agreement
SLA is a significant aspect of SaaS agreements you should check while subscribing to a new service. Typically, all SaaS agreements come with a comprehensive SLA section covering everything you need to know, including the different performance standards and usability criteria.
For example, the majority of SaaS agreements offer 99% uptime percentage, and some go beyond to assure you 99.99% uptime.
If you face frequent service interruptions or sluggish performance, you can report your issues to the company and ask them to make reasonable efforts to resolve them as soon as possible. Also, check for the detailed description of the security provisions at the technical infrastructure and the hosting center.
You need to know how SaaS providers manage data security and how many parties are involved in handling the data.
Problem response time is a crucial SLA clause that defines the turnaround time for any problem resolution from the vendor side. This clause plays a significant role if you have a substantial dependency on that SaaS.
Subscribe to SaaS agreements only if you are comfortable with their service terms and performance standards. The subject matter of this agreement can have long-term impact on how your organization uses the subscription.
8. Consumption Metrics and Billing Units
Effective management of consumption metrics of SaaS agreements brings in a new challenge for business owners. If you plan to implement company-wide SaaS management, it’s essential to know the SaaS application consumption metric.
Each unit of a value that sets costing and has a pre-defined limit or capacity is a consumption metric.
You need to identify these costing units for tracking and optimizing the expenses. Some common examples are the total number of emails sent using a SaaS marketing platform or the storage capacity used in a month or a year.
If you use SaaS for more complex tasks like project management or document transfer, then tracking consumption metrics and billing units becomes more critical. Using a SaaS management platform, you can quickly highlight unnecessary expenditures and cut them down to optimize the overall SaaS expenses.
Knowing the exact consumption metrics helps you perform better SaaS agreement negotiation with the company and save a significant amount. The majority of the SaaS subscriptions offer discounts on their enterprise plans. If you find the consumption of a particular SaaS agreement high and you are still paying the standard cost, you can try negotiating the contract with the SaaS provider.
9. Data Handling and Regulatory Compliance
With the existing regulations, including GDPR, CCPA, and SOC II, several companies are obligated to follow these regulations. If you are in a region or industry that requires compliance, you should ensure that the SaaS provider is also compliant with the exclusive jurisdiction. While reading the SaaS contract, ensure that the agreement also outlines all relevant information in accordance with the applicable laws.
10. Licensing Rights and Access
Licensing rights and access are critical yet often overlooked aspects of SaaS agreement that define how you’re permitted to use your subscription. Every SaaS provider will have a different set of rights that you need to comply with as a customer. These licensing rights also vary based on the type of SaaS subscription you or your teams use.
The majority of SaaS organizations will specify that you are not the owner of the services or product. Instead, you’ve only purchased a license to use their platform for a limited time. You need to know how you can use the software and its available APIs with your systems.
While purchasing an enterprise license, check how many individuals or ‘seats’ you can use under your contracts. If the number of users exceeds the limit mentioned in the agreement, you might need to pay additional charges. Sometimes, these additional charges are hidden, and they are billed at the end when you renew the services.
SaaS Management Platform to Simplify SaaS Agreements
With a SaaS management platform, you can get actionable insights on your multiple SaaS subscriptions. Be it renewal automation, checking for overuse, termination policy, or hidden charges — you can get comprehensive inputs that can save your time and money.
You can optimize your company’s SaaS subscriptions to get the maximum utilization at a discounted price. Using advanced SaaS management features like SaaS negotiation can land you a better monetary deal with the SaaS provider, saving substantial money in the long run.
These SaaS management platforms create a bespoke portfolio for your company where you can check other essential aspects like licensing requirements, usage, ROI, database factors, and more. It becomes easier for you to read these terms and decide whether or not the terms comply with your business.
Using a SaaS management platform, you can ensure there are no such apps in your stack that you or your team no longer use.
CloudEagle is a leading SaaS management platform that lets you manage your SaaS subscriptions and vendors in an end-to-end manner. You can purchase, renew, manage, and optimize your SaaS agreements in a unified way using CloudEagle.
You can use advanced features like automated SaaS vendor discovery, vendor optimization, and smart SaaS negotiation to get the best value for your money spent on SaaS subscriptions.
CloudEagle helps you simplify the complex SaaS agreement management, keep a check on your budget, and optimize your spending effectively.
Whether you are a startup, a small-sized company or an enterprise trying to scale your business using SaaS, you can get ahead of the curve and handle the management efficiently. Apart from managing agreements, you can keep a firm check on compliance, usage policy, and other privacy aspects with the help of CloudEagle.
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