SaaS Agreement Checklist: 10 Things You Need to Know

Software as a Service (SaaS) applications have become essential for businesses across various industries. They're scalable, easy to use, and cost-effective. However, as these platforms handle a lot of data and sensitive information, it's important to have a solid legal agreement in place. This is where a SaaS agreement comes in – it's a contract that outlines the terms and conditions between the provider and the customer.

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These agreements support key operational processes like Revenue Operations (RevOps). A clear and concise SaaS agreement ensures that both parties stick to their commitments.

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Surprisingly, many organizations, including IT and security teams, often overlook the details of these agreements. This can lead to significant security and data protection risks, especially when managing multiple SaaS subscriptions.

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To navigate these complexities and protect your interests, it's essential to understand the key elements of a SaaS agreement. I've put together a simple checklist to guide you through the essential aspects of SaaS agreements. This will help you know what to look for and understand the terms, liability clauses, and service level agreements (SLAs) before signing.

What is a SaaS agreement?

A SaaS agreement is a legally binding contract between a software service provider and the client that outlines the specifics of the service provision, including terms of use, subscription duration, and payment details. This contract is essential for defining the legal relationship between the two parties, ensuring both understand their rights and responsibilities.

The agreement covers various crucial aspects such as privacy policies, user restrictions, and guidelines on how the software can be used, including geographical limitations. It also details what happens if either party wishes to terminate the agreement. It also addresses critical issues such as intellectual property rights, confidentiality, and liability limits, which are vital for protecting the provider and the user.

Despite its importance, many users tend to overlook the details of SaaS agreements. A startling 91% of Americans do not read these contracts thoroughly, potentially missing critical information about liability clauses and service level agreements (SLAs). This oversight can lead to significant challenges, especially since the software may be used extensively within a business, handling sensitive information.

Buyers must carefully read and understand the terms of the SaaS subscription agreement before consenting to and starting to use the product. It is also important to stay aware of any policy changes that might occur after updates to the service.

The importance of having a SaaS agreement

For software providers, a SaaS agreement acts as a legal shield. It details all obligations for the end users and allows the provider to hold customers accountable in cases of service misuse or agreement violations. This is crucial in maintaining the integrity of the service and ensuring that it is used as intended.

The agreement spells out critical details for customers such as service-level guarantees, licensing requirements, and how their data is handled. It addresses important questions like:

• What type of data is collected and how is it defined?
• How long is the data stored, and what happens to it after service termination?
• Who owns the data and who is liable in the event of a data breach?
• What are the repercussions of breaching the contract?

It also helps in setting clear guidelines on the usage of the service, which can significantly aid in avoiding misunderstandings and preventing disputes over service scope. This fosters stronger relationships with clients.

The agreement protects the provider's intellectual property. It clarifies who is permitted to use the software and the specific terms of use, safeguarding the provider's hard work. It also specifies payment terms, helping to ensure that providers are compensated in a timely manner for their services.

10-step checklist for SaaS agreements

1. Start and end dates

Understanding your SaaS agreement's start and end dates is fundamental in managing your software subscription effectively. The start date marks when the agreement comes into force, making the SaaS application available to the businesses that have subscribed. This is the date from which all terms and conditions of the agreement begin to apply.

On the other hand, the end date is critical as it indicates when the subscription needs to be renewed or will terminate. Being vigilant about these dates is essential to ensure a smooth user experience and avoid any service interruptions. This is particularly important for sales teams, who rely on these dates to prepare and negotiate contract upgrades or renewals.

It’s also beneficial for sales representatives to plan their renewal negotiation strategies well. Effective tracking of contract dates enables companies to optimize the value they derive from their SaaS subscriptions.

It's crucial to be aware of whether your agreement includes an auto-renewal clause, like most of our OTT platforms these days. However, in a business, especially when dealing with SaaS agreements, it's vital to track these clauses. Unmonitored auto-renewals can lead to unnecessary expenses if the service is no longer needed or if there are more competitive options available on the market.

1. User permissions and accessibility

Another crucial element to include in your SaaS agreement checklist is the section on user permissions and accessibility. Most SaaS agreements define a specific cap on the number of users allowed to access the software, which varies depending on the subscription plan chosen.

Basic SaaS plans are typically designed for individual use, meaning only one user is permitted under a single-user license. If your team comprises multiple members, it’s important to consider this limitation as it could significantly affect how you utilize the software.

To accommodate more users, you may need to opt for an enterprise-level plan or negotiate with the provider for a customized agreement that suits your team's size and needs.

Additionally, it's wise to understand the repercussions of exceeding the agreed number of users. Some agreements include penalties for violations of these terms, such as fines or the potential suspension of your service. Ensuring that you are fully aware of these details can prevent unexpected costs and disruptions in service.

Leveraging Negotiation for Cost-Efficient SaaS Agreements - When negotiating your SaaS agreement, consider discussing volume discounts or flexible terms with your provider, especially if you anticipate needing to expand your team’s access in the future.

1. Support services and customer assistance

It's important to thoroughly review the customer support and services clauses in any SaaS agreement you're considering.

Different companies offer varying levels of support, including phone support, 24/7 email assistance, or a combination of both. Before committing to a SaaS product, confirm the types of support offered and understand how these services align with your business needs.

The agreement should clearly outline how support will be provided and what the expected response times are. This is particularly important if there is a significant time zone difference between your location and the company's headquarters, as it could impact the timeliness of support.

Check if the SaaS provider offers onboarding and technical support to ensure you and your team can seamlessly access and use the software from the outset. If these services are not explicitly mentioned in the agreement, you might need to negotiate their inclusion or ensure they are reflected in the pricing.

1. Ownership and data management

It's vital to have clear definitions in the agreement regarding how the vendor will handle the data collected during service usage and what the data ownership arrangements will look like.

Determine who retains ownership of the data inputted or generated by the customer. While some vendors state that any data uploaded to their system becomes their property, ideally, the agreement should specify that the customer retains ownership.

This should include provisions for retrieving your data if the contract is terminated. Be wary of vendors who claim ownership of your data; always negotiate terms that safeguard your interests, especially when it comes to sensitive or proprietary information.

Utilization and protection of data

Regarding data usage, if the vendor claims ownership rights, it is essential to understand exactly how they intend to use this data. Some agreements might permit the vendor to use your data to enhance their services.

However, you should have the option to restrict this use, especially in cases involving sensitive information like patents, source codes, trade secrets, and confidential customer data.

Also, data ownership regulations can vary significantly by region.

Example, in the European Union, data management is more standardized due to GDPR compliance. In contrast, other countries might not have such stringent controls, allowing vendors to collect and use extensive data sets.

1. Subscription renewal and notification periods

A critical element of your SaaS agreement is understanding and managing the subscription renewal process, especially the notification period required if you decide not to automatically renew your service. This aspect is vital as it often poses management challenges for subscribers due to varying notice requirements across different applications.

Vendors must clearly define the notice period users must inform them if they do not wish to renew their subscription. For instance, a common requirement might be a 30-day notice period before the contract expires. Users need to adhere strictly to this timeline; failing to give timely notice can lead to automatic renewal of the contract, which might not always be in the user's best interest.

The complexity increases for enterprises that use multiple SaaS applications, each potentially with its unique renewal terms and notice periods.

To effectively manage these challenges:

• Ensure that each SaaS agreement specifies the notice period. Typical durations are 30, 60, and 90 days, although some agreements may require as little as 15 days or as much as 180 days.
• Negotiate with vendors for a notice period that best suits your operational needs, such as a 90-day notice period which offers more flexibility.
• Consider implementing a centralized contract management system. This system can help track and manage different SaaS agreements and utilize automated workflows to alert you well before each renewal deadline.

1. Understanding total contract value in SaaS agreements

Understanding the total contract value (TCV) of your SaaS agreements is crucial, as it represents the complete financial commitment you are making over the contract's duration. This value includes all associated costs and financial obligations across different facets of the business, which can provide significant leverage for optimizing your SaaS agreements.

It's common to find discrepancies between the initial commitments outlined in a SaaS contract and the actual expenses incurred. For instance, if your contract states a commitment of $20,000, but your invoices reflect higher charges, it's essential to investigate and understand why these costs have increased. The reasons can vary, from an increase in the number of active users beyond what was agreed, to charges for additional features, or overages that weren't initially accounted for.

Moreover, it's not uncommon for team members to sign up for trial services and forget to cancel them before they automatically convert into paid subscriptions, leading to unexpected charges. To manage these situations effectively:

• Regularly review and compare your SaaS contracts to ensure they still meet your needs and reflect your actual usage.
• Track usage metrics, additional feature opt-ins, and other factors that might contribute to cost increases.
• Instead of manually monitoring these expenses, consider using procurement software like Ramp. Such tools can help you identify unnecessary expenditures and provide insights for cost optimization.

1. Assessing the Service Level Agreement (SLA)

This section of the agreement spells out the specific services the vendor is committed to providing, including various performance standards and usability benchmarks that they are obligated to meet.

One key advantage of SLAs is that they hold vendors accountable for maintaining the quality of servicethey promise. For instance, it's common for SaaS agreements to guarantee 99% uptime. If the vendor fails to achieve this, the SLA should provide mechanisms for accountability, allowing you to seek remedies or compensation as outlined.

If you experience frequent service disruptions or performance issues, the SLA gives you the right to report these problems. The agreement should compel the vendor to address and resolve these issues promptly, ensuring the service runs smoothly.

An important aspect to look out for in an SLA is the response time clause. This specifies how quickly the vendor must address and resolve any issues you encounter. This clause is particularly vital if your business heavily relies on the SaaS product for day-to-day operations.

Before committing to a SaaS product, ensure that the SLA terms covering performance standards, uptime commitments, and resolution procedures are acceptable and align with your business needs. Only subscribe if the service levels meet your requirements, providing a solid foundation for a reliable and effective business tool.

1. Understanding consumption metrics and billing models

The section outlines how usage of the SaaS application is measured and billed. It directly influences how you will be financially responsible for the service throughout the contract term.

SaaS vendors may choose different billing models depending on consumption. Common methods include billing per user or based on the extent of usage, such as data consumed or features accessed. Understanding these metrics is crucial for anticipating costs and managing budgets effectively.

Properly managing these metrics can lead to significant optimizations in how SaaS expenses are handled for finance teams and business owners. It's about monitoring costs and ensuring that the billing model aligns with business usage patterns.

Before you commit to a SaaS agreement, it’s important to thoroughly review the specified consumption metrics and billing units. Make sure these terms are clearly defined, reasonable, and within your business's capacity to manage. This scrutiny will help prevent billing surprises and aid in more accurate financial planning.

1. Compliance obligations

These elements are foundational in ensuring that personal and corporate data stored on the vendor’s servers are managed securely and per legal standards.

No organization should enter into a contract with a vendor that cannot guarantee the security of its data.

This includes a thorough examination of the vendor's compliance with relevant regulations such as the General Data Protection Regulation (GDPR), California Consumer Privacy Act (CCPA), Payment Card Industry Data Security Standard (PCI DSS), and System and Organization Controls (SOC) II, among others.

Before signing any SaaS agreement, it is essential to confirm that the vendor’s service complies with the latest security standards and regulatory requirements.

When reviewing a SaaS contract, make sure it explicitly outlines how data is handled and that it aligns with all applicable legal frameworks.

1. Exit strategies and termination clauses

The termination policy is a crucial element at the end of our SaaS agreement checklist. It ensures that both parties understand the conditions under which the agreement can be concluded or discontinued.

Key aspects that every termination clause should cover include:

• Ensure that any specific costs or penalties associated with terminating the contract prematurely are clearly outlined to avoid unexpected expenses, paying close attention to early termination penalties.
• Understand the required notice period that must be given to initiate a smooth termination process, ensuring both parties have adequate time to prepare for the end of the service.
• Outline how data will be returned or destroyed after the termination, as it is vital to specify data retention and migration procedures since many vendors do not transfer data ownership during the contract.
• Clarify any duties or responsibilities that persist beyond the end of the contract, such as confidentiality commitments or other post-service requirements, to understand post-termination obligations.

Streamlining SaaS agreement management with Ramp

Robust procurement tools like Ramp can significantly streamline the process of managing SaaS agreements and enhance efficiency. Ramp offers a comprehensive suite of features that not only help control and monitor spending but also simplify the complexities associated with managing SaaS contracts.

Centralized spend management: Ramp enables you to control spending from the outset. Automating the entire procure-to-pay process eliminates approval bottlenecks and prevents out-of-policy spending. This is particularly useful in managing SaaS agreements where budget adherence and policy compliance are crucial.

Consolidated request and approval process: With Ramp, all spend requests are captured in a single place. This centralization is essential for managing various SaaS subscriptions and services, ensuring that all contractual commitments are visible and manageable from one platform.

Enhanced collaboration and quick approvals: Ramp simplifies collaboration by centralizing procurement discussions, cutting down on lengthy email threads, and allowing direct comments and tags in requests or purchase orders. This feature is invaluable for accelerating approval cycles, especially when dealing with multiple stakeholders involved in SaaS agreements.

Automated approval workflows: The platform supports building automated approval workflows that integrate seamlessly with existing tools. This functionality ensures that SaaS agreement requests are routed correctly and efficiently, maintaining compliance and speeding up the procurement cycle.

Visibility into spend commitments: Ramp provides a clear view of all committed spending, which is crucial for managing SaaS agreements effectively. By automatically generating purchase orders and matching invoices to these orders, Ramp ensures that every financial aspect of SaaS agreements is tracked and controlled, reducing the risk of overspending and enhancing budget management.

Ramp is a powerful ally in managing SaaS agreements by providing the tools to control spending, streamline procurement processes, and maintain clear oversight of all agreements. This management level is crucial for businesses looking to optimize their SaaS investments and ensure they derive maximum value from their software subscriptions.