So you have decided to use a new SaaS service. You have agreed on a plan and are ready to roll.
Yet, have you read the SaaS agreement?
Are you sure you understand and agree with every single clause, or do you want to negotiate?
SaaS contracts are often overlooked when a company buys a service. Most blindly sign it, leaving no room for negotiations and facing the consequences later.
Did you know that you use only 71% of SaaS software? So why pay for the entire thing?
That is why SaaS agreements are so important. They lay down the basics of the contract and your rights in case of performance issues and even help you negotiate the pricing.
In this article, we will talk about the top nine terms that you must watch out for on your next SaaS agreement.
If you want to refresh your knowledge, SaaS is one of three core cloud technology categories.
Nine terms to look out for in a SaaS agreement
Here are nine terms to look out for before you sign your SaaS contract.
- Access rights or the license
- Data Ownership
- Auto-renewal clause
- Logo rights
- SLAs (Service Level Agreements)
- Payment terms
- Force majeure
- Limitations of liability
- Response and resolution
1. Access rights or the license
Access rights are a crucial part of a SaaS agreement and often the first thing you should consider. Some software offers it as a license, and some offer it as a more defined access clause.
An access rights clause defines the terms of usage of the SaaS product. It constitutes how many users can use the product and the penalties if they exceed the agreed limit. Some services, especially the new ones, offer per-user fees instead of unlimited access to ensure the adoption of their product.
There are different types of access rights offered by SaaS services. These include
- Worldwide – Access grant for product usage anywhere on the planet. You can negotiate the prices here if you want access to only a specific country or region.
- Non-exclusive – Access grant for only ONE customer (Yes, you read that right!)
- Revocable – Access grant to revocate another customer’s usage rights under special circumstances. For example, if another customer is using it to harass other customers by installing viruses.
2. Data Ownership
Your SaaS agreement must specify how the company will collect and use user data. Although most agreements mention it in detail, some may hide the facts in the fine print.
Data ownership, if not looked into carefully, can result in serious legal troubles.
Zluri’s guide to SaaS agreements mentions that companies need to follow international data protection standards. These include GDPR, PCI DSS, SOC 2, etc. So, if your vendor follows one, you can be assured that your user data is safe.
Sometimes, companies may keep using the data stored even after the termination of the contract. So, you must be aware of the purpose of usage and whether users consent to it.
3. Auto-renewal clauses
As the name suggests, an auto-renewal clause acts as an indefinite contract renewal agreement with the same terms and conditions. You cannot terminate it unless you give prior notice to the company, typically 30 or 60 days prior.
Often, this clause goes unnoticed by parties buying the SaaS product, thanks to long contracts and the intentions to build good business relationships.
That is until you have to terminate the agreement.
Consider this: You sign the one-year contract and find a new and better tool one day after the 12th month. Unfortunately, since you did not terminate the contract, you are stuck with the previous unsatisfactory agreement.
Some small or mid-sized companies might waive the auto-renewal fees if you terminate the contract later. However, most large companies won’t, and you may either have to pay the full amount or a penalty fee.
4. Logo rights
In most SaaS agreements, the company might want to use your logo for publicity purposes and define your relationship with them as their customer.
That’s not an issue if you are a small, unknown company or a startup. However, if you become famous, your logo will increase in its worth. So, you shouldn’t give away your logo rights for free.
Even if you are not yet a large company, act like one. You may ask for a discount from the company in exchange for your logo rights.
5. SLAs (Service Level Agreements)
An SLA or service level agreement defines the quality of services the customers should expect from the company and remedies for failure to meet that quality.
For example, 99% or more is a common uptime offered by most SaaS companies.
A SaaS service level agreement allows you to report your issue and expect the service provider to make necessary efforts to resolve the issue. It also gives you the right to terminate the agreement if the SLAs are missed frequently.
Remember, you are paying for that service. So, if you are heavily dependent on that SaaS and it goes down for a week or even a day, you will face the consequences. Therefore, you should want to get compensated or have the right to walk off, regardless of whether it is because of a ransomware incident or something else.
6. Payment terms
The first thing you want to ensure after deciding on a particular SaaS service is the pricing. You want the service to fit your budget.
Here are a few things you should do.
- Carefully check out their pricing page and weigh out the benefits of each plan
- Take into account the price of each license
- When will you need to pay an invoice – immediately or within 30 days of receiving it?
- Who will pay the VAT if your company operates from Berlin and your SaaS provider is in the UK?
7. Force majeure
Force majeure might be a new term for you, especially if it is your first signing a SaaS contract. The term is a contractual clause that frees both parties signing the contract from continuing the service during unforeseeable circumstances.
The current pandemic, which has disrupted businesses worldwide, is a perfect example of a force majeure.
Will you get your money back after the discontinuation?
How will you be compensated?
Is the compensation worth more or less?
Consider all your options and see whether they’re fair before signing the agreement.
8. Limitations of liability
Limitations of liability are always mentioned in a SaaS contract. It caps the company’s liabilities due to product failure or either party’s business disruption.
SaaS products typically disclaim all liability. This means that by signing the contract, you agree to never sue them, whatsoever the reason be. The contract specifies that both parties will not be liable for any incidental, indirect, consequential, or special damages.
However, you can negotiate with the provider to give you some liability, which may equal the subscription fee of a few months.
9. Response and resolution
No matter which clouds service you use, you are going to need the help of customer support at some point in time. You can’t escape the contract because of software issues because a contract binds you.
The response and resolution clause specify how customer support will help you resolve the issue. Most SaaS companies offer a response within 24 hours of receiving the complaint, which may take up to 7 days for a workaround.
Read between the lines
Now that you know which terms to look for when signing a SaaS contract, you can easily see whether it works for you in the long term. Things like SLA, access rights, data ownership, auto-renewal clause, and limitations of liability are the most important ones you must look for.
However, make sure you read right through the fines lines or hire a lawyer to do that for you. After all, your money, company, and customers are at stake. It is easier to back out before signing the contract than after.
About the author:
Tuba Sarosh is a result-driven SEO content writer and editor who helps businesses turn their readers into clients. She writes about trends, tips, how-tos, and other cool stuff that helps businesses serve their customers better. When not writing, she’s reading a good book or experimenting with recipes.