SaaS is becoming increasingly popular among businesses — and for good reasons:
- They’re more scalable as they can be easily updated and expanded to meet changing needs.
- They’re generally easy to use, implement, and always up-to-date.
- They’re solutions essential to stay on top of digitalization and global expansion.
On average, a business use 110 SaaS, and their annual contract value ranges from $25,000-$100,000.
In this article, we’ll talk about SaaS agreements and how SaaS contracts work, including the terms and conditions on software access and subscription management.
Also, we’ll provide you with SaaS agreement templates that your SaaS business might require, and how to manage them using contract management software.
What is a SaaS contract?
A SaaS contract (or software as a service agreement) is a contract between a software provider and a customer that outlines the terms of usage for a cloud-based application. It typically specifies that in exchange for a recurring fee, the hosting company delivers services that subscribers can access via the internet.
While the contract’s exact terms vary, all SaaS agreements are designed to give both parties a clear understanding of their commitments and liabilities ― for the service provider, if a user misuses it or for the subscriber, if they suffer from prolonged, uninformed technical difficulties.
What is the difference between SaaS and Licensing Agreement?
The important difference between SaaS and licensing Agreement is how they regulate the software hosting. With SaaS, the software is hosted by the provider whereas with a licensing agreement, the customer host the software.
With licensing agreements, the user pays for the right to download and use the software on their device. Upon purchase, a user is authorized to install the software, so they have the flexibility to use the software, even offline.
However, SaaS agreements are for subscription-based software. It states that as long as the users pay their subscriptions, they can access the service anywhere with an internet connection. No installation is required.
We list more of the difference between a SaaS and a software license agreement:
- Usage rights: SaaS agreements specify the number of users that have the right to use the software ― usually depending on the subscribed plan. Unlike a licensing agreement where software license is limited to the purchaser only (but can install software to unlimited devices).
- Update rights: With SaaS, you typically receive support or updates as part of your subscription. So only under a SaaS agreement is this written down.
- Scalability: SaaS apps are good for scaling up or down. The app’s agreement details the number of users included in the subscription plan, so adding or removing users is easy. Meanwhile, licensing agreements are for a one-time purchase. You’ll need to buy more licenses to include more users.
When do I need a SaaS contract?
A SaaS contract is a must-have anytime a SaaS company has a client. It can help to protect interests and ensure that both you and your customers are clear on the terms of use for your product.
Also, note that if you’re a SaaS company offering services to individuals and a few other businesses, having multiple SaaS contracts isn’t uncommon. They can ensure that your software is used legally and responsibly.
One good example here is HubSpot. It’s a SaaS company that’s big in the world of marketing. They provide various agreements for their customers, partners, developers, or anyone who surfs their website.
These legal documents govern how they do business including their take on data privacy and security.
Parts of a SaaS contract
While SaaS contracts can vary in detail, there are some clauses you’ll find in most agreements. Consider this section like your SaaS agreement checklist that you can refer to from time to time.
Access rights and users
This defines the users of the software and how they may use it. Basically, this section should clearly state who has access to the software and the type of access they have. Preferably include any restrictions on use, such as the limiting number of users allowed or penalties for unauthorized usage.
Data ownership
Perhaps, this is one of the most contested issues in a SaaS contract ― who owns the data generated by the use of the software? Is it the customer who has paid for its use, or is it the provider who has created the software? This section clarifies this.
License agreement
This clause details the exact rights and restrictions associated with using the software. It may also include a provision allowing the SaaS provider to terminate the subscription if there’s a breach of the agreement.
Payment Terms
Every complex to simple SaaS agreement has this clause. You’ll find here details of how much the service will cost and when each payment is due. It may also include information on any applicable discounts or price adjustments.
Service Level Agreement
The purpose of this section is to define the quality standards that the SaaS provider agrees to meet. It may include uptime, response time, and data security metrics.
Termination and renewal
The termination clause outlines the conditions under which either party can terminate the SaaS agreement and a renewal clause for continuing the contract. Note that renewals are usually automatic unless either party gives notice of termination. However, some contracts may include a provision for renegotiation of terms at the time of renewal.
Performance objectives
This section will outline what kind of guarantee the SaaS provider gives regarding the uptime and performance of the service. This will let you know what to expect in terms of reliability.
Confidentiality and intellectual property rights provisions
These clauses help to protect the software from being disclosed to unauthorized persons and from being copied or reverse engineered.
Cancellation policy
If a party wishes to cancel the contract, are there any penalties or fees involved? This clause clearly explains the cancellation policy. It’ll most commonly specify things like notice requirements, fees, and whether or not any prorated refunds will be given.
Security provisions
This contract clause outlines how the data will be protected. The security measures should protect the confidentiality, integrity, and availability of the SaaS application and data.
Limitation of liability
This section limits the number of damages that either party can recover from the other in case of a breach of contract.
Other Types of Agreements SaaS Companies Need
To protect your SaaS business, in addition to the SaaS agreement you need to have several other agreements in place.
Take a look at the most used contract templates every SaaS company needs:
This is one of the basic agreements that outline the terms under which software can be used. It includes rules about who can use the software, how to use it, and what restrictions apply. This simple SaaS agreement template addresses what happens if users violate the terms of use.
This agreement sets out the terms of the relationship between the SaaS company and the software development partner. The B2B SaaS agreement template> includes the scope of work, timelines, deliverables, and payment terms.
This agreement assigns all of your company’s intellectual property rights to the entity. This includes the website, software code, and trademarks or copyrighted materials.
An NDA is crucial for protecting your company’s trade secrets. If you’re sharing sensitive information with someone outside of your company, make sure they sign an NDA first. This template is an open-source, standard-form NDA.
The Employment Agreement sets forth the terms of the working relationship employee-company. It includes provisions regarding confidentiality, proprietary information, and restrictive conditions.
This agreement governs the rights and responsibilities of the company’s shareholders. It should include provisions on voting rights, dividends, and the sale of shares.
This contract for employees is not subject to the Employment Act 1955. This document describes the scope of the services being provided and sets forth provisions for changes in service offerings or pricing and termination procedures.
How to create a SaaS contract in Avokaado
So if you’re SaaS, it’s better to have these agreements prepared even before the actual time you even use any of them.
Let us share with you how to create them using contract lifecycle management software that can cut contract costs and increase overall contracting transparency.
If you’re in doubt, check out this article about the benefits of contract management solutions: 12 benefits of contract management software.
Start here: Choose how you’ll start creating your contract:
- If from scratch or using an old MS Word SaaS contract template, you can upload your document afterward in Avokaado so you can automate the next steps.
- However, the more practical and efficient option is to start drafting using Avokaado templates.
Here are the steps to drafting a SaaS contract in Avokaado.
Step 1: Choose and purchase (even if it’s free) the template of the agreement you need from Avokaado’s store ― they’re 100+ ready-to-use and previewable templates.
Step 2: Browse the template library where the purchased document has been saved. Click on it to open it as a new document.
Step 3: Fill in the document’s pre-generated questionnaire, so the agreement reflects your entered details. You can see the real-time changes on the preview panel.
This time, you got two options. Either continue working on the document with your coworkers or save and download the copy. If you choose to continue, here are the proceeding steps:
Step 4: Add your team’s collaborator/s so they can add more input. Choose the rights they’ll have, whether an editor or viewer. Note that only the editor has the right to change or add additional documents.
Step 5: Once the initial draft is prepared, set up the approval process. Add approvers who will review (or reject) the SaaS contract draft. You can also decide who will review the document in what order.
Step 6: If approved, use Avokaado’s integration to sign apps, so you don’t have to jump applications to get digital signatures. The other signing party can also use this to share their signatures.
Get your SaaS agreements ready
Without a SaaS agreement, there would be no clarity around what the customer is entitled to, what the provider is responsible for, and when there is a problem.
Getting them ready doesn’t have to be complicated or time-consuming. With the right contract management system, you can create and manage it seamlessly.
If you want to start creating SaaS contracts, check out our free trial of Avokaado CLM where premade templates for your most common agreements are readily available.