Different SaaS businesses have unique SaaS agreements.
And if you’re not familiar with these contracts, creating or signing them can be quite a handful.
Let’s also not forget that the terms and clauses found in SaaS contracts can be quite confusing.
And you don’t want to end up signing your life away!
But don’t worry — we’ll simplify things for you!
We’ll explore what SaaS agreements are, their benefits, and the clauses and terms commonly found in them.
From there, we’ll check out the downsides of these tech contracts, the four types of SaaS contracts, and some FAQs.
This Article Contains:
- What Are SaaS Agreements?
- 2 Key Benefits of Having a SaaS Agreement
- 10 Clauses and Terms Found in Most SaaS Agreements
- 2 Downsides of SaaS Contracts
- 4 Types of SaaS Agreements
- 3 SaaS Agreement FAQs
Let’s dive in!
What Are SaaS Agreements?
SaaS (software as a service) agreements are legal contracts outlining the terms and conditions of using a SaaS service. They usually include information about product features, payment terms, a service level agreement (SLA), data security, intellectual property rights, and more.
So, when do you need a SaaS agreement?
As a professional service provider, you need to have a SaaS agreement if you choose to license software instead of selling it outright. Also, you need to create a SaaS contract whenever you acquire a client.
Let’s now dive in and discover the benefits of using these tech contracts.
2 Key Benefits of Having a SaaS Agreement
SaaS agreements are important for both the SaaS technology provider and the customer. They set clear expectations and highlight all the responsibilities of each party.
Here are the two major benefits of having these contracts:
- Clarifies Everything About the Software Provided: A SaaS contract outlines important information, such as product features, subscription models, subscription fees, the client’s rights and responsibilities, and more.
- Protects the Service Provider: SaaS agreements outline how customers can or can’t use your SaaS solution. For example, the contract may prohibit customers from sharing the SaaS application with others or using it for illegal activities. This could ensure that your software is used responsibly.
Before you create a SaaS agreement, it’s important to understand what information you should include.
So, let’s explore some of the common clauses found in SaaS contracts.
10 Clauses and Terms Found in Most SaaS Agreements
SaaS companies create unique SaaS agreements containing distinct terms and clauses. But almost all of these companies have these terms in their contracts:
- Performance Objectives: Outlines what customers should expect from the service offered by the SaaS vendor. This includes any service guarantees and the kind of results produced by the SaaS product.
- Customer Support: Details the way in which you’ll provide support services and also highlights your response time.
- Data Security: This clause indicates how customer data is stored and how often it will be backed up. It also outlines everything about data protection, like how customer data is protected and what will happen to it in the event of a data breach.
- Data Ownership: In simple terms, data ownership mentions the people who get rights to the data that’s entered into the SaaS platform.
- Number of Authorized Users and Access Rights: This clause details the number of users allowed to use your SaaS product. It also outlines the penalties to be enforced if the service is used irresponsibly.
- Pricing and Subscription Plans: This part of the legal agreement outlines all the pricing details and SaaS subscription models offered by the SaaS vendor. It also indicates the payment terms, payment frequency, and payment methods.
- License Scope: A SaaS provider usually offers a SaaS license that the customer will use upon purchasing the service. The SaaS license typically specifies the customer’s rights and limitations. For example, it will usually highlight the fees charged for using the SaaS application and any penalties or interest fees for late payment.
- Service Level Agreement (SLA): This part of the service agreement mentions everything relating to service availability and performance standards. It also highlights your service’s uptime percentage.
- Contract Renewal and Termination: Outlines the processes to be followed when terminating or renewing the service. SaaS agreements usually renew automatically for another term unless the customer terminates their agreement before an established date.
- Limitation of Liability: This legal provision limits the amount of money or damages the liable party should pay for breaches or performance failures. In simple terms, it puts a cap on the amount of damages the service provider will have to pay to the customer.
Are there any disadvantages of using these cloud service agreements?
2 Downsides of SaaS Contracts
Although SaaS agreements come with incredible benefits, here are some of the downsides you should be aware of:
- They Can’t Protect Companies From All Liability: If a customer uses the SaaS software to sell illegal goods, the software provider might still be held liable despite the terms of the contract.
The software provider can’t control customers’ actions. And if the customer is caught selling illegal goods using SaaS software, the professional service provider could still be held responsible for such activities, despite the contract.
For instance, the subscription-based file-sharing software Megaupload allowed customers to store and share large files. However, some users also distributed copyrighted material (such as movies and music) illegally.
The company faced copyright infringement charges, and its founder (Kim Dotcom) was arrested in 2012.
- Clients May Be Able to Sue the SaaS Provider: Clients may sue the SaaS technology provider if the software experiences unanticipated downtime or data breaches.
Although SaaS contracts include liability waivers, such waivers might be invalid in some regions. That’s because the enforceability of liability waivers varies depending on the specific laws and regulations of each region.
Now, let’s take a look at the different kinds of SaaS agreements.
4 Types of SaaS Agreements
SaaS agreements come in various forms, and there are instances where you might need to use multiple SaaS contracts.
For instance, your staff might have some knowledge about your SaaS marketing strategies, data used to calculate key SaaS metrics, and Standard Operating Procedures (SOPs) — a step-by-step guide that helps employees perform routine tasks efficiently.
So, it could be necessary to create a staff SaaS contract to protect your data.
Meanwhile, you could create third-party agreements if you allow your product to be integrated with third-party software. Also, bear in mind that the type of legal agreement you pick depends on your SaaS business model.
Here are the four types of SaaS contracts and their examples:
- Customer-Facing Agreements:
- Service Level Agreements (SLAs)
- Master services agreements
- Purchase and sales order agreements
- Company-Level Agreements:
- Employment agreements
- Assignment of intellectual property (or IP transfer) agreements
- Shareholders agreements
- Confidentiality agreements
- Public-Facing Agreements:
- Trademark policies
- Privacy policies
- Security policies
- Third-Party Agreements:
- Contractor agreements
- Advisor agreements
- Affiliate/partner agreements
Now that you’ve discovered how to create multiple SaaS contracts, let’s go through the questions you might have about these cloud service agreements.
3 SaaS Agreement FAQs
Here are the answers to some SaaS agreement FAQs:
1. What Are Some of the Best Practices for Creating a SaaS Contract?
If you want to create an excellent SaaS contract, it’s best to seek the help of a professional legal team.
And if you plan to create the contract by yourself, then use the best SaaS agreement template builders.
But bear in mind that you should use the correct legal language that’s strong enough to stand in court. In this case, it’d be best to seek legal advice and have the contract template reviewed by a lawyer.
And before you create the contract, ask yourself these questions:
- Do you have the budget to afford a reputed legal team?
- What are the risks associated with your proposed SaaS contract?
- If you’re using your own templates, do you have access to ones that align with your brand?
Once you’ve figured out everything and have a relevant contract template, make sure that you:
- Add all the necessary information to the contract, such as the description of the service and the start and end dates for the subscription.
- Seek legal advice and work with a legal team whenever you plan to change any clause in the contract.
- Always proofread the contract multiple times and ensure that everything is accurate.
2. What Is the Difference Between SaaS Agreements and Licensing Agreements?
The differences between SaaS agreements and licensing agreements are:
- Access Rights: With a licensing agreement (also referred to as a license agreement or software license agreement), the user pays for the right to download and use the software on their device. In most cases, the user has the flexibility to use the tool even without an internet connection. But the license may be invalid in the regions where the software is illegal to use.
Unlike a software license agreement, a SaaS agreement offers a subscription-based service through the cloud, and no installation is required. If the customer has paid for the service, they can access the SaaS solution from anywhere in the world (as long as they have an internet connection).
- Usage Rights and Scalability: A SaaS agreement usually details the number of authorized users allowed in a certain subscription plan. In most cases, adding or removing users to a subscription plan is quite easy.
Meanwhile, a licensing agreement typically involves a one-time payment for using intellectual property. So, you’ll have to buy more licenses if you want to include more users.
- Update Rights: Customers usually receive software updates as part of their SaaS subscription plan.
But in a license agreement, customers don’t typically get software updates as part of the initial license purchase. Instead, they usually have to buy an upgrade license.
3. What Additional SaaS Agreements Might Companies Need?
If your software involves the processing of personal data, then you might also have to include a data processing agreement in your SaaS contract. A data processing agreement is a contract stating the rights of each party concerning the protection of data.
Create a Smart SaaS Agreement for Your Company
Every SaaS company should make it a priority to create a SaaS agreement.
Having a service agreement in place increases transparency and helps avoid customer disputes.
In fact, without a SaaS agreement, there’d be no clarity about what the user is entitled to. What’s worse is that customers might end up using your services to conduct unlawful activities.
So, if you’re serious about growing your SaaS brand, make sure you work on creating a SaaS agreement. And if the process seems confusing, always request assistance from a legal team.
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