When it comes to protecting your business, it’s important to offer clear contracts with plainly delineated expectations and terms. This not only protects you from legal action but also has the benefit of improving your customer service. In order to craft a comprehensive SaaS agreement, there are a few things you need to know.

What is a SaaS Agreement?

In this form of business agreement, terms and conditions are clarified between a SaaS company and its customer. This may cover action items like service agreements or may simply grant users access to software.

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How is a SaaS Agreement Different From a Licensing Agreement?

SaaS businesses are unique in that their software is accessible to customers who pay a regular subscription fee. This differs from the original means of vending software wherein a customer buys relevant hardware for a large up-front fee, then physically installs that hardware on their server. This traditional model is bound through a licensing agreement.

In a SaaS model, customers can pay for services rendered via the cloud, and there is no exchange of physical goods. As such, the structure of a SaaS agreement (otherwise known as a Service Level Agreement, or SLA) focuses on expounding upon the services rendered by the company as well as permitting the use of their product. This generally includes customer support services, software maintenance, and hosting customer data as well as the SaaS software on a remote server to be accessed online via the cloud.

Two main differences between a traditional licensing agreement and a SaaS agreement are that ownership is never transferred from the company to a SaaS customer, and that a customer’s right to use SaaS products end upon the termination of their subscription.

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Touchstone Clauses in a SaaS Agreement

While the specifics of a SLA vary across industries, products, and services offered, there are certain tenets of a SaaS agreement that remain constant. Here are a few examples of clauses you can expect in an effective SaaS agreement:

  • Access right and user cap. Established to limit either data accrued or users able to access the software, a well-crafted SaaS agreement will:
    • Detail a metric used to quantify its limits
    • Define what a user is
    • Establish penalties for abuse of its terms
  • Customer support. A comprehensives customer service plan will detail:
    • Response time
    • How customer support services will be rendered
    • Additional guarantees regarding expectations for comprehensive service
  • Data ownership. This clause of a SaaS agreement outlines who is granted the rights to the data entered into the platform.
  • Data security. Knowing data is stored securely will put your customers at ease. This section should cover:
    • Protections your company has in place
    • Information regarding data backups
    • Where data is to be stored
    • Encryption responsibilities
    • What happens to data in the event of:
      • Bankruptcy
      • Termination of services
      • Security breach
  • Scope of licensing. The rights a company plans to transfer to its customers should have clear limits and definitions.
  • Limitation of liability. A company should cap contractual liability as well as making damage limitations clear.
  • Master agreement language. This should enable the agreement to act as a master document for all services offered by the company so that they do not have to draw a new contract every time a customer wishes to alter their plan.
  • Performance goals. This section should outline company standards as well as what customers can expect from your product or services. A comprehensive performance objectives clause should include:
    • Relevant, quantifiable results
    • Guarantees
    • Specifics as to what your business will not provide
  • Clear pricing. This clause should describe a company’s prices as well as when a customer can expect charges over the course of their lifecycle with the SaaS, whether that be yearly, quarterly, or monthly charges.
  • Rights to a physical copy of the product. The bulk of SaaS agreements state that a customer does not have rights to a physical copy of their software.
  • SLA clause. This clause sets the minimum performance standards regarding performance availability that a customer can expect from the company.
  • Subscription plan. A detailed explanation of what a subscription plan includes should include how services will be delivered.
  • Renewal, term cycle, and termination. These clauses should cover the processes a company will go through in the event of a renewal or termination. Most SaaS companies opt for evergreen renewal terms, or automatic renewal. If this is the case, it is important that the customer understand that they must actively seek to terminate their subscription in the even they wish to discontinue the service.

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Other SaaS Agreements

While detailed agreements with your customers might prove to be the most common official document your business requires, there are different levels of agreements which may necessitate different language and documentation. Here are a few examples of different kinds of agreements you may want to add to your inventory:

  • Company-level agreements. These are typically drawn to include:
    • shareholders agreements
    • employment agreements
    • non-disclosure or confidentiality agreements
    • IP transfer or assignment of intellectual property agreements
  • Third-party agreements. Examples of these include:
    • contractor agreements
    • advisor agreements
    • partner or affiliate agreements

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SaaS Policies

Aside from protecting your business through thorough agreements, keeping your business on track may require the employment of policies. Consider crafting company policies regarding trademark, privacy, and security in order to safeguard every business transaction and leave you to focus on important business decisions.

Privacy Policies

Legally, if your company collects any personal data they must offer a privacy policy. Be sure your privacy policy is compatible with other recognized standards, like those of California, Canada, or the European Union.

Because most SaaS companies gather at least an email address from their customers in order to maintain their subscription account, it is a good idea to include a privacy policy in your professional repertoire. A good privacy policy will outline:

  • how your business collects and utilizes personal information
  • whether your business shares personal data with third parties or affiliates
  • what personal data your business collects and where it is stored
  • if cookies are used; why cookies are used; and which cookies are used
  • how customers can:
    • withdraw consent to have their personal data gathered
    • limit data that is amassed and used
    • request to have personal data deleted

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Terms of Service Agreements

Otherwise referred to as “terms of use” or “terms and conditions,” terms of service agreements offer an opportunity for businesses to set rules customers must follow if they wish to utilize your services or product. These agreements are at their best when they are clearly written for the average person to understand; writing at your CEO’s level of comprehension might not be easily upheld in court, for example, in an agreement intended to be between you and an average customer.

Here are some key facets of a well-crafted terms and conditions agreement:

  • payment term specifics
  • licensing information
  • limitations of liability and disclaimers
  • warranties
  • relevant laws governing the contract
  • how you will notify clients about changes to the agreement
  • what your business does with data generated by customers
  • copyright and intellectual property rights
  • business contact info
  • specific consequences should either party violate the contract
  • how customers can end the service contract, including any relevant penalties should they end their contract early
  • restrictions and limitations of use

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Summary

In a successful SaaS agreement, a company should clearly detail expectations on either side of the contract, whether that be between a company and its customer or with a third-party affiliate. This form of agreement differs from a licensing agreement primarily due to the service component of SaaS model businesses.

Legally protecting your company with official documents is a vital step necessary for a business’ continued success. Consider linking up with a SaaS lawyer who can help you draft agreements that are clear and beneficial for all parties by limiting room for misinterpretation or error! This initial investment can pay dividends down the road you have yet to imagine.