What Is a Subscription License Agreement?

A subscription license agreement—or SLA for short—is an agreement between the manufacturer of a product and the consumer who wishes to use that product. These agreements exist to both protect proprietary software from abuse and prevent fraud. They often stipulate how the product may be used, how new authorized users may be established, and whether the product may be modified by any party other than the manufacturer. 

Subscription agreements are increasingly common, especially in the information technology sector, but in other areas as well.

Effective contract management is a must when dealing with these complex agreements. Most SLAs are standard agreements that every customer will sign with little modification other than party names and dates. Click-to-sign software like clickwrap agreements makes the signature process easy and easy to track. Your company can streamline its use of subscription license agreements to increase revenue and save time.

A subscription license agreement is an agreement between your company and a customer to use the software or product you have the rights to. It allows the customer to use the product in the way you want them to and with any limitations you wish to establish. SLAs detail how a product may be used and whether the subscription may be accessed by other parties. They can even include details about installation and the technical requirements necessary to run the software.

Some companies may still use a perpetual license, which is a one-time upfront payment for software without further cost, other than possible technical support. However, subscription services for everything from employee management software to streaming services are increasingly common. 

These services create a regular flow of income for your business with customers who pay on a monthly or annual basis. These arrangements require legal documentation to protect your company’s rights and ensure continued revenue. 

SLAs are especially common for software companies who want to sell their product to customers. Instead of a one-time sale with perpetual rights, a subscription agreement grants a business access to software so long as they continue paying for it in regular intervals. For example, a company with HR management software may offer their services for a certain monthly fee which continues until the consumer wishes to end the contract. 

Other industries that may use subscription license agreements include, but are not limited to:

• Media streaming services
• Accounting software companies
• Educational resource technologies
• Web hosting services
• Social media sites.

SLAs protect your company and your product from abuse. Customers are not given unfettered access to the software simply because they pay for the service. The subscription license agreement grants them certain rights to use the product while limiting their ability to abuse that right. After all of the effort and resources you put into developing this product, you want to ensure you protect your revenue-generating abilities for a long time.

Other reasons to use a subscription license agreement include:

• Preventing theft of your software
• Permitting licensure of the software without sale
• Allowing you to disclaim or limit warranties
• Limiting liability
• Allowing you to terminate use at any time or on certain conditions.

You need a subscription license agreement any time you want to allow customers to use your product, assure they pay you regularly, and not sell the customer a perpetual right to the product or software. Subscriptions give you better control of how your product is used and for how long. And when managed correctly, they increase revenue and provide consistency.

As the subscription model for technology continues to increase in popularity, your company needs to stay on top of the increased volume of contracts and complexity of these agreements. Digital contracting software allows you to streamline your process.

A subscription license agreement contains many sections that are crucial to protecting your company’s rights to the product. An SLA should include provisions like:

Party identification

The contract should outline the parties’ information, such as their address, company name, company representative, contact information, and service of process information. Digital contracting creates autofill sections for this information that may be cataloged and managed effortlessly. Party identification is key to the enforcement of a subscription license agreement.

Length of subscription

The SLA should outline how long the agreement lasts. Many last until one party terminates the agreement with a certain amount of notice, such as 30 days. Others are limited to a specific period—a year, for example—with the option to extend. How your company wants to handle this is up to you, but it must be clearly outlined in the agreement.

Payment for the license

The contract should specify the cost of the license, including the amount of money paid for each recurring period. It should also identify when those amounts must be paid, i.e. yearly or monthly. This could also include details about maintenance fees, technical support, or other potential costs and how they are calculated.

Non-exclusivity clause

You likely want to allow other customers to use your software. The subscription license agreement should include a section that tells the customer the contract is non-exclusive and you may also license this product to other companies or individuals. This significantly protects your revenue stream.

Non-transferability clause

You likely want to maintain control of your product and not permit it to be transferred by the customer. A non-transferability clause prohibits or limits to whom the customer may transfer this license. It also protects your rights to your valuable intellectual property.

Reservation of rights

The subscription license agreement should specify that you retain rights to the software even after execution of the agreement, including:

• Possession of the software
• The name or trademark
• The copyright
• Distribution rights
• Intellectual property rights.

Modification 

The SLA should determine whether you will permit modification to the product. In many subscriptions, you will forbid any modification by the customer to the code or other aspects of the product. With other subscriptions, you may wish to allow certain modifications while limiting others. In either case, the agreement should be clear about what modification rights the customer has.

Breach of contract provisions

The subscription license agreement will contain multiple provisions about what occurs if the customer breaches the contract. This may include:

• Governing law and jurisdiction
• Terms of termination
• Liquidated damages provisions
• Termination of usage provisions.

Subscription license agreements are complicated legal documents that, when improperly managed, are hard to track and enforce. For many companies, these SLAs are high-volume contracts that bog down their sales teams because of the time it takes to negotiate and sign the subscription agreement. Instead, this process should be fast, easy, and consistent to let your departments focus on new customers—not time-consuming contractual issues.

These agreements also require in-depth tracking of payment schedules and termination dates. Advanced contract lifecycle management tools let you track this information effectively to avoid these limitations.

You can create a subscription license agreement by using templatized agreements to save time and effort. A form agreement lets you handle high-volume subscription agreements with ease while affording you the power to modify agreements to fit specific business arrangements. It gives you fillable fields that the software tracks and organizes to make it easy to identify a particular contract.

Managing SLAs with outdated software can be difficult and confusing. Your company wants many customers to sign up for their service. Tracking each customer can be incredibly difficult when using unsophisticated methods like spreadsheets to track each agreement. 

Instead, contract data reporting gives you powerful insights into your agreements and specific details important to your business. These details may include:

• Monthly payment information
• Length of term for subscription
• Terms and conditions of the agreement
• Party information
• Automation and template suggestions
• Contract data metrics

Why subscription license agreements can be time-consuming and hard to keep track of

SLAs are complex documents with many aspects to track. This includes not only the party information but the payment features for the subscription. This may differ from customer to customer, but effective software can track these differences and make them easy to utilize.

Automating workflows for subscription license agreements

Ironclad’s Workflow Designer tool lets you automate your SLAs by creating automated processes and reporting. This automation can streamline your contract processes by 80% or more. This is an easy and effective way to increase your revenue and let you focus on more important aspects of your business.

Why subscription license agreements are hard to manage

Companies that use unsophisticated contract management tools find subscription agreements hard to track. They are complex documents with variable end and payment dates. Enforcing agreements can be challenging unless you are using advanced software to manage your SLAs.

Digital contracting with Ironclad gives you the solutions you need to manage your subscription license agreements. Our software empowers you to self-service contracts and manage important data metrics using tools like:

• Clickwrap agreements
• Artificial intelligence
• Editor
• Contract data repository
• Workflow Designer tool
• Integration with Salesforce, DocuSign, and other partners

Subscription license agreements need effective contract management to ensure they are profitable and successful for your business. Because of their periodic nature, these agreements can set your company up for long-term revenue generation. 

These periodic payments can be hard to track and collect with antiquated contract management tools and processes. Revenue may be lost and your product could be at risk of abuse without proper management.

Try a free demo of Ironclad now to start automating your subscription license agreements.