SaaS Agreement: What should it include and how to write it?

What is a SaaS agreement?

By simple definition, a SaaS agreement is a binding legal contract between the SaaS provider and the customer. What exactly does it do? The purpose of a SaaS agreement is to regulate and define conditions and guidelines of what you and your customer agree to when using your product. To break it down further, SaaS agreements will typically include a reseller, subscription and service level agreement. These agreements generated from the SaaS provider will paint a picture of customer service, customer data metrics, and support for the product provides.

When is a SaaS agreement needed?

As I mentioned above, you’ve spent time, energy, and resources to build this SaaS cloud service. In recent years there has been a shift in the industry from selling you the software outright (Microsoft Office, Xbox Game Pass, Adobe Creative Cloud, etc.) to instead selling you a license to use the product via SaaS and cloud services. What you may be thinking? Companies have found better security for customer data, improved version and software support, and most importantly user benefit.

Important SaaS agreement sections

This section is intended to outline the important aspects of a cloud service SaaS agreement. Note that each SaaS contract will differ depending on the specific industry you are developing the product for.

Access rights and users

Going back to the Microsoft example, this clause defines the metric for access to the product. This is based on the number of users, or the amount of customer data needed.

  • State what a “user” is.
  • Set guidelines for breach of SaaS contract.

Customer Support

This section will have a great impact on client buying decisions. You may have built an impressive product with anywhere accessible cloud services, but if you cannot support it properly, you will end up with frustrated customers and a bad reputation.

  • The availability of support and how quickly response time should be.
  • Special provisions for higher-end subscriptions.

Data ownership and security

Data ownership is defined as who has the rights to the information that is uploaded to the cloud services. Data security is all about how you are protecting those who use your product. The customer data subject can be touchy for some, but ultimately transparency is key when provisioning these parameters.

  • When should the client expect their data to be backed up?
  • Where the uploaded data is stored.
  • What happens in case of a data breach, company bankruptcy, or termination of service.

License Scope & Limitation of Liability

In your SaaS agreement you must instruct your customers on the scope for which each license tier is used for. Once again using the Microsoft example, each package will give certain permissions to various applications. Limited liability focuses on what you will accept and deny in case of damage or loss of property. Along with a cap number of potential damages to which cloud services providers are exposed too.

Master SaaS agreement language

This clause is more about quality of life. Once you grow and add features to your SaaS and cloud services, it’s important to include a master service level agreement. This will protect you from clients who constantly change terms and try to renegotiate the services provided.

Product Performance

No matter how many problems your product may solve, if the cloud services it’s hosted on are slow and full of errors, no one will be happy. Be sure to define:

  • Software maintenance services, keeping up to date with the latest data security trends.
  • Potential beta testing opportunities.
  • The limitations and what your product, and what it does not promise.

SaaS contract pricing

Detail each tier of the SaaS agreement, from the cost to the features, it’s important to give as much information as possible from a quick glance. Typically, a SaaS contract will use a subscription model and will accept payments monthly, quarterly, or yearly. To incentivize clients perhaps you can offer a discounted price when choosing certain pay date options.

Service Level Agreement (SLA)

SaaS agreements should always include an SLA to set a minimum standard of performance. This prior written agreement should set expectations for uptime availability for critical operations.

Term, termination, and renewal

Grouping all three of these clauses will determine the process and procedure for terminating or renewing any SaaS agreements. Normally a SaaS agreement will have a system that will auto-renew any service for another term. Unless of course, the client wishes to cancel.

SaaS agreements and their limitations

As we have discussed so far, SaaS contracts are meant to protect you and the customer, however, that does not free you from all liability. Say for example a client is using your software for illegal activity, like stealing customer data. Since you are the provider, it is possible to be held liable regardless of the SaaS agreement.

How SaaS agreements are built

Theory always comes before practice, as in this case, we have gone over the bases for what makes up a SaaS agreement. As well as the best practices to look for. Now it is time to figure out how to create them. Please note that we will not be going over the legal verbiage, as this is not legal advice. This section is focused on the best ways for creating your own SaaS contract. Let’s begin.

Other company agreements

In addition to standard terms of service, and terms of use SaaS agreement for your clients, as a business, you may also need these other types of agreements for staff and customers.

Internal Company Agreements

While employees are the vital pieces that keep your company moving, they have certain access and knowledge about your Standard Operating Procedures (SOPs) that must be protected.

  • Non-Disclosure Agreements (NDA)
  • Employee Standards
  • Shareholder Standards

Third-Party/Reseller Agreements

If you decide to white label your product or allow integration with third-party software, proper outside vendor SOPs must be defined.

  • Contractor or Freelancer Agreements
  • Advisory Agreements

Examples of SaaS agreements

At the beginning of this article, I used Microsoft Office365 as a well-known major SaaS example. Let’s take a look at their terms of service and break down some of the important pieces. As you can see from the image below, Microsoft is defining the first part of their SaaS agreement: Access rights and users. You can see the details that are gone over for each sub-section of terms of service. From defining the do’s and don’ts when creating a Microsoft account, to account use and termination. They are detailed in their approach in covering all bases for using their platform. Even to go as far as discussing child accounts.

Recap

If you have made it this far, first off thank you and I hope you enjoyed the article! To recap what we went over I’ll answer the following questions.

What is a SaaS?

A Software-as-a-Service is a product or program that can deliver its features over a cloud service. A SaaS eliminates the need for on-premises software and hardware installation saving you time and money.

What is a SaaS agreement/contract?

This is an agreement that defines the Standard Operating Procedures (SOPs) and terms a client must agree to when using your product or service. This protects the business and customer data.

When is the best time to build a SaaS agreement?

The best time to create a SaaS agreement is when you have completed your program development and are ready to launch publicly for use by companies or individuals.

How do you write a SaaS agreement?

The best way to have a SaaS agreement writing is to find a professional legal team that can create a master agreement template on your business’s behalf. If you cannot afford a legal team, consider using an online SaaS agreement template builder that you have done research and trust.

Conclusion

Cloud consulting companies are always in the world of the next “Big Thing” in tech. Having the flexibility to adjust your terms is essential to building a proper business. Be sure to revisit your terms every so often to keep up with new trends and best practices. When doing so don’t forget to have existing users agree to these updated terms.

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