Developing or signing a Software as a Service (SaaS) contract for your business can be intimidating. If you haven’t encountered a SaaS contract in the past, they can be difficult to understand, much less manage. A SaaS contract consists of many individual elements, each of which is vital to protecting your company’s intellectual property.
Still, a SaaS contract is just a legal document. When you break it down, it’s easier to understand SaaS agreement meanings and components. Here’s what you need to know about SaaS contracts, what they contain, and how to manage the contract generation process.
What is a SaaS contract?
SaaS, or Software as a Service, is a business model that’s quickly growing in popularity. SaaS businesses are businesses that offer software on a subscription, often with pricing tiers, rather than selling a one-time installation. These companies need to use specific contracts to support their subscription model.
A SaaS contract is similar to a licensing agreement. However, unlike a licensing agreement, SaaS companies don’t provide a physical product or installation. Instead of providing a physical CD or download of a product, a SaaS purchase agreement licenses the right for another business to use the software through the cloud. The customer can only use the software in line with the terms of their subscription.
As an example, your advertising and media teams might be using one well-known SaaS product already: Adobe Creative Cloud.
The purpose of a SaaS contract
A SaaS contract clarifies the exact software access that clients receive for as long as they’re subscribed to the service. Many SaaS companies offer several subscription tiers at different price points. Each tier offers more software features, or includes more user accounts. The contract identifies which level the customer has chosen, their exact rights and responsibilities, and their subscription fee.
SaaS agreements also protect the company whose services are being used. They outline ways in which customers can’t use their license software. For example, they may prohibit the customer from sharing it with other people or using it to facilitate illegal activities. They may also include clauses that limit liability in case of a data breach. These terms protect the company from losing customers and revenue due to piracy or hackers.
SaaS contracts are all different, and they depend on the company and the service. Some companies, like Adobe, offer monthly and yearly subscriptions. Other Software as a Service contracts allow customers to pay as they go, only paying for the software when they use it.
When do I need a SaaS contract?
SaaS agreements are essential whenever a company chooses to license software instead of selling it outright. Any company that decides to license rights to cloud-based software needs to put terms, limits, and liability waivers in place or risk lawsuits and lost revenue.
SaaS companies often need multiple SaaS contracts. It’s common for these companies to offer individual and small business contracts alongside custom enterprise-level solutions.
For example, Adobe Cloud Creator gives customers the option to purchase an individual subscription or a small business license. These contracts are relatively static. The subscriber can choose the service tier they want to access, but the term and the price aren’t up for negotiation.
Meanwhile, Adobe also works with major institutions like universities and large businesses. These contracts are primarily negotiated by assessing the number of users and bandwidth the client will need, the term length, and whether they’ll need personalized or custom teams to support them. If your company operates in a similar way, you’ll need to create unique SaaS agreements for each enterprise-level customer.
Parts of a SaaS contract
A SaaS agreement will vary depending on the specific industry and services it covers. However, there are a few clauses and terms that every SaaS contract will have. These include, but aren’t limited to:
- Access rights and users: The number of users that the contract permits and the penalties if the customer exceeds that amount.
- Data ownership: Provisions that make clear who owns data uploaded to the service.
- Data security: Both parties’ encryption, backup, and security responsibilities. This clause is vital for SaaS companies that work with clients’ sensitive information.
- License scope: The precise rights and limits the clients receive through the contract.
- Liability: The liability the SaaS company accepts and denies, along with a contractual damage cap.
- Warranties: Performance objectives, the method of service delivery, guaranteed minimum performance and uptime, and any results your service doesn’t promise.
- Pricing and subscription plans: The tier of the subscription, the payment schedule, and the amount the client is expected to pay.
- Term, termination, and renewal: The subscription period, the methods for canceling, changing, or renewing a subscription, and any penalties for ending the subscription early.
In combination, these clauses cover everything from cybersecurity to legal liability. SaaS companies can use these terms to ensure that they retain full ownership of their software while still offering clients useful services.
Limitations of SaaS contracts
SaaS contracts do have a few limitations. They can’t protect companies from all liability.
Suppose a customer uses a SaaS service for an illegal purpose, like selling drugs. In that case, it’s not impossible that the provider could be held liable despite the contract.
Similarly, clients may be able to sue the SaaS provider if the company experiences unanticipated downtime or privacy breaches. While contracts do include liability waivers, these waivers may not be considered valid in every jurisdiction.
How to create a SaaS contract
Writing a SaaS contract from the ground up takes care. If you don’t have a SaaS contract, work with your legal team to build a thorough template document. The legal language must be robust enough to stand up in court.
If you already have a template, however, the process is more straightforward.
- Input your prospective client’s information and the start and end dates for the subscription.
- Select the subscription tier your prospect has chosen and enter the data into the payment and subscription fields.
- If you’re adjusting your licensing terms for a client, work with your legal team to alter the relevant clauses.
- Proofread the contract to ensure no other adjustments are necessary.
Boilerplate contracts like those for individuals are simple. However, large-scale contracts for enterprise contracts can require significant adjustments. It’s managing those adjustments that make SaaS contracts so complicated.
Managing SaaS contracts
A thorough SaaS contract can have dozens of individual clauses. Your legal team needs to ensure that each of these clauses is legally robust. They also need to keep track of each customer’s specific requests and any alterations to the standard contract.
With the complexity of different subscription tiers and services, your legal team may need to spend hours on every SaaS contract. They need to track down data across multiple systems that don’t communicate with each other. They also need to convert data from its original form into a format that can work in the contract.
That level of detail is vital to keeping your contracts legally robust, but it’s also time-consuming. Manually managing SaaS contracts can become a significant bottleneck in your business’s operations. It doesn’t have to be that way. You can make SaaS contracts simpler by using the right tools.
Automating workflows for SaaS contracts
You can simplify your SaaS contract process by using Ironclad’s Workflow Designer to institute workflows through a contract lifecycle management service. A templatable workflow is a customizable workflow that generates a template that you can use again and again. When you use the Workflow Designer, you provide your team with an organizational structure for completing tasks and contracts quickly.
In SaaS contract development, templated workflows help your team flow through the process smoothly. There’s never any doubt that your team missed a critical step, or that something went undone. The process is transparent from start to finish.
In contract lifecycle management solutions, the contract is stored in a central location, and the template is applied to it directly. Anyone who has access to the agreement can see and potentially perform the next step of the process. Furthermore, once an appropriate action is completed, the following relevant party is immediately notified so that they can begin work. People can even work together on the same templates, making collaboration simple.
Templated processes make SaaS contracts easier to manage. In combination with the contract lifecycle management software, your team can put together excellent SaaS agreements in a fraction of the time. There’s no need to waste time on transferring paperwork or confusion when people can work together with instant notifications.
Ironclad product features that help
If you want to implement templatable workflows in your SaaS contracting process, Ironclad’s Workflow Designer can help. You can design your team’s contract creation process from start to finish. It works within Ironclad’s contract lifecycle management platform, so it’s part of an all-in-one solution.
Ironclad is docX-native, so everything you create within the platform can be seamlessly transferred to and from Microsoft Word. You can choose to work within the platform or in Word, depending on what works best for your organization. Best of all, the process is completely transparent. You can follow the contract from start to finish and catch problems before they can appear.
You can also implement the Ironclad Data Repository. Once you’ve created your contracts, the Repository makes it easy to keep track of all your information. You can search contracts and related documents without needing to remember a word of legalese. You can even use the Repository to send automatic task reminders to yourself and your team, complete with the data you need to finish the work.
An efficient SaaS contract process can help your company avoid bottlenecks and grow more quickly. That’s why it’s so valuable to establish a reliable templated workflow for your contracting team. You can reduce organizational thrash, increase transparency and collaboration, and reduce all the time you waste on contract creation.
Working with Ironclad’s digital contract management solution can help you achieve all that and more. Ironclad can help you streamline your SaaS agreements, giving your company a competitive advantage. When you’re not wasting time and resources recreating documents and workflows, you can focus on your core competencies and become better as a company. Contact Ironclad to discover how digital contracting can make your business more efficient today.
- What is a SaaS contract?
- The purpose of a SaaS contract
- When do I need a SaaS contract?
- Parts of a SaaS contract
- Limitations of SaaS contracts
- How to create a SaaS contract
- Managing SaaS contracts
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Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.