The Complete SaaS agreement checklist: 14 things you need to know
Reading SaaS agreements may not be the most exciting. It often takes hours to read through Software-as-a-Service (SaaS) agreements for the new SaaS product that your business will be using. Going through a SaaS checklist is crucial in avoiding any loopholes in your process since they can significantly impact your business later. Here’s a complete SaaS contract checklist to look out for while closing or renewing your SaaS agreement.
Modern businesses rely more on digital tools, and the hybrid work life only adds to the complexity of SaaS management processes. On average, companies were using over 110 SaaS applications in 2021 globally, and this is only increasing.
However, it comes with a caveat. Companies end up wasting 30% of their SaaS budgets. The reasons for wastage include panic-buying solutions, not negotiating well, duplicating purchased SaaS solutions, and more. In addition, one would need more people and hours to manage multiple SaaS contracts simultaneously.
So, we have put together a comprehensive SaaS agreement checklist to avoid missing out on any agreement details on subscription pricing, intellectual property, regulatory requirements, and more. But, before we dive deep into it, let's cover some basics.
What is a SaaS agreement?
A SaaS contract or agreement between the vendor and organizations lays down all the clauses, terms, and conditions on how users can use the software, manage the subscription, and get guaranteed uptime. In addition, it includes complete payment details and a service level agreement (SLA).
This SaaS agreement is a legally binding contract from the vendor that ensures the delivery of services and quality as promised. It eliminates all ambiguity - and clarifies the responsibilities of the SaaS vendor and organization.
What is the purpose of a SaaS agreement?
A SaaS agreement creates a common ground between the parties, a single place for all information and obligations, and works as a legal shield. Simply put, a good contract should provide complete clarity. It protects both parties too.
An agreement covers multiple factors, including customers' rights, limitations of use, how the software will be maintained, privacy policies, service guarantees, licensing requirements, terms around subscription management, and data storage.
Before signing agreements, let's dive deeper into the different things to look for:
The ultimate SaaS agreement checklist: for first contracts and renewals.
This article has 14 checklist items you must check off every time you read a SaaS agreement.
- Check the start date
- Confirm the end date
- See the subscription notification length
- Look out for consumption metrics
- Double check the billing and pricing details
- Are there any variables or extra charges?
- Calculate the total contract value (TCV)
- Look into access and licensing rights
- Are the data privacy clauses and standards up to the mark?
- Go through the intellectual property rights (IPR) and data ownership clause
- Consider service level agreements (SLA) that fit your need
- What is the vendor's commitment to Customer Support?
- Cover the termination and opt-out section
- Look out for the auto-renewal policy
This list also includes some questions you could ask the vendor during the SaaS agreement negotiation.
1. Check the start date.
Confirm the date that the agreement and all its clauses become officially active. Ensure it is the same as the day your team starts using the SaaS application.
2. Confirm the end date
The 'end date refers to the date of termination of the existing agreement. Please keep track of this date since it becomes essential for procurement teams to negotiate the contract during renewal.
Tip: Keeping start and end dates in mind helps an uninterrupted user experience. SaaS spend optimization tools like Spendflo track all your SaaS apps in a single dashboard, so you never forget about contract durations and auto-renewals.
3. See the notification timelines for renewals.
Software providers need to give the organization time to decide whether it wants to renew the subscription or terminate it. This clause outlines how much the company would be notified in advance and is called notification timelines.
Vendors must send you a subscription notification 30 days before the 'end date.' You can set a different renewal notification timeline depending on the data and processes involved.
Tip: Discuss with the service provider if you can increase the notification length to 60 or 90 days.
4. Look out for the consumption metrics.
SaaS companies set their pricing on specific consumption metrics or billing units. For example, email service providers have the number of emails sent as a billing unit, with further specifications into email segmentation and trigger emails.
Vendors build different plans based on these units of value. One must ensure that all the teams the organization's users want to consume should be in the plan or bundle.
When thinking about renewal, tracking consumption to optimize SaaS budgets and spending is essential. SaaS usage data can be used to negotiate and save costs significantly.
5. Double check the billing and pricing details
SaaS vendors offer tiered subscription plans - monthly, yearly, quarterly, or a mix. A monthly subscription model is easier on the pocket and does not legally tie the company to using one SaaS platform for long periods. Still, it is typically expensive compared to annual plans. On the other hand, yearly subscriptions cost less and can be paid either upfront or monthly but tie you into using a product for a year.
Keep an eye out for details covering invoicing dates, billing frequency, interest rates for late payments, and payment methods.
6. Are there any variables or extra charges?
Some vendors may not be as transparent about costings, but the agreement's purpose is to cover all blind spots. For example, you may mention variable fees incurred if you cross some usage caps. Look out for the following:
- Are payments inclusive or exclusive of taxes?
- Is the provider likely to increase or change the payment amount?
- When would the invoices be issued?
- What are the different methods of payment and payment details?
- Is there an interest rate applied to late payments?
If unclear on these, request the vendor to mention them in the SaaS agreement. This clarity would help you avoid any cost overruns.
7. Calculate the total contract value (TCV)
It is essential to know the amount of money a business would pay for the complete renewal of a contract. There may be some gaps between what was initially agreed upon and the amount spent. Keeping track of TCV will help identify billing surges and their root cause. It could be because of new features, crossing user restrictions, feature caps, and overages.
Aggregate this information and more about SaaS applications across the business with an automated SaaS Spend Management platform.
8. Look into access and licensing rights.
A SaaS subscription plan covers usage or the number of users accessing the software. Licensing rights are a critical aspect that may be overlooked. This section defines how the end-user(s) are permitted to use the SaaS subscription. Do check whether the software license agreement is single-user or multiple-user.
While purchasing the licenses (specifically for enterprise companies), check how many users can use the software under the agreement. Some vendors may impose a fine or penalty for violating their usage policy or may automatically charge you if you exceed the cap of users set within the agreement. In addition, the SaaS vendor may also hold the right to terminate the contract or put it on hold. So, keep on the lookout for any such restrictions.
Tips: You can get good discounts from the vendor by opting for multiple-user plans during your SaaS negotiations.
9. Are the data privacy clauses and standards up to the mark?
Regulatory compliance for the processing of data is of utmost importance. There is sensitive data that may get stored, like customer data, financial details, or other personal data. The SaaS vendor is responsible for protecting data, and the agreement binds them to comply with international data protection standards. Use automated due diligence software to ensure Vendor Trust.
It is imperative to know how the SaaS provider uses and manages data and opts out of the services that are not compliant with the organization's standards. In addition, your data has to be safe. Therefore, this section in the agreement also covers warranties around data security risks and loss.
So, while reading through the contract, ensure that it covers the standards the vendor is compliant with. Some regulations you should look out for:
- General Data Protection Regulation (GDPR)
- Service Organization Control 2 or 3 (SOC II or III) Certification
- California Consumer Privacy Act (CCPA)
- Payment Card Industry Data Security Standard (PCI DSS) - cardholders and payment information
- Health Insurance Portability and Accountability Act (HIPAA) - for sensitive patient health information
- And more
Tip: Check if there's a financial liability provision in the contract in case of a data breach. This provision would hold vendors accountable for data loss, damage, intrusion, or other breaches.
10. Go through the intellectual property rights (IPR) and data ownership clauses.
The SaaS business owns its software, while the consumer purchases a software license. So, the company owns the right to access and data. In addition, most agreements come with an exclusive IPR clause that covers copyrights, patents, and trademarks - all of which are owned by the SaaS provider.
One can never be too careful about data management. Some questions you should consider around data privacy and ownership:
- How does the software provider store and transmit data? Is there a section around restrictions on access to data?
- What would the vendor do with data once the contract is terminated? Is there a return procedure?
- It is the vendor's responsibility to perform backups often. How often does the vendor perform it?
- Does the SaaS provider have a right to sub-license its customer data rights?
Make security and compliance checks easier with Spendflo. It compiles all documents and checklists from vendors per your requirement so that you can sign off and close the loop faster.
After covering all specifics, let's now look at some clauses around quality assurance.
11. Consider service level agreements (SLA) that fit your need.
SLAs are established to ensure that the vendor lives up to quality standards. This clause outlines the services the vendor has agreed to provide, how the quality can be measured, the average response time in case of an issue, fines applicable if any, and more.
One of the most common SLAs is uptime.
Downtime is among the biggest threats to anything SaaS-related. SaaS companies have data centers to avoid any. The uptime percentage measures SaaS service reliability, so most commit to 99% uptime.
One of our SLAs at Spendflo is 'Save up to 30% on your SaaS stack, or get your money back.'
Properly covering SLAs can save companies from bad service quality or lousy performance on the vendors' part. In addition, this agreement can be used to resolve problems between consumers and the vendor.
12. What is the vendor's commitment to customer support?
All companies have different support offerings depending on the location and purchase plan. For example, some offer phone services, others provide 24x7 email support, and so on. This commitment is imperative to ensure a good user experience.
Make sure it covers a typical response time of 24-48 hours (on a business day), considering time zone differences.
13. Cover the termination and opt-out clause
Does the agreement cover an option where if the department does not like the services, it can prematurely end the contract? The agreement can also cover the events that can trigger an opt-out:
- End of the subscription term
- The vendor has violated the service quality they promised
- Any data breaches
Furthermore, the clause must cover the timelines by which the payment should be settled in case of termination.
Tip: Prepare your contracts better by requesting the addition of a transition process. When you want to transition to a new tool, the vendor can help with the data transfer and make the transition smoother.
14. Look out for the auto-renewal policy.
The termination clause could have a section around auto-renewal of the SaaS contract. You must notify the vendor within the specified timeline to cancel auto-renewal. The vendor has to inform you about automatic renewal at least 30 days before the end date.
Some other factors
More things the agreement should cover:
- Name the features, products, or services the SaaS provider is offering.
- Any free licenses or discounts provided by the provider.
- Platform details
- Most importantly: the account manager and support persons' contact details.
Reviewing hundreds of agreements and managing multiple SaaS subscriptions is complex and tiresome. A SaaS buying and management platform can handle all your contracts in a single place.
Simplify contract management with Spendflo
Manage all vendors on one platform and stay on top of all contracts with Spendflo.
With Spendflo, you can:
- Centralize all purchase requests, approvals, and contracts.
- Pass negotiation to expert buyers who find the right price.
- Shift to thoughtful procurement. Move away from panic purchasing and evaluate competitors before buying tools.
- Cancel all auto-renewals and pay only for the SaaS tools in use.
- Chasing vendors to ensure compliance and clearance for the SaaS stack.
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