SaaS Contracts: Types & Key Clauses

SaaS contracts are legal bindings that come in various forms. These documents aim to provide clarity and prevent misunderstanding regarding the utilization of SaaS services. But what are these types? In this article, we'll thoroughly explore the basics of SaaS contracts and their different types.

Creating or entering into a SaaS contract can be intimidating, particularly for individuals who are inexperienced or unfamiliar with the process. These agreements can be complex and challenging to figure out because they include various components, each crucial for safeguarding your company's intellectual property.

Furthermore, a lack of proper understanding of SaaS contracts can lead to unfavorable/wrong agreements, potentially leading to legal consequences. Therefore, it's important to familiarize yourself with the intricacies of SaaS contracts.

So, let's first begin by understanding what a SaaS contract is.    

SaaS Contract Definition

A SaaS contract, or a SaaS agreement, is a legal document outlining the terms and conditions for utilizing a SaaS service between a SaaS provider and a customer.

This contract breaks down the subscription terms, pricing structures, Service Level Agreements (SLAs), data security provisions, and other pertinent terms.

It establishes both parties' rights and responsibilities, ensuring clarity on accessing, utilizing, and maintaining the SaaS application throughout the subscription period.

But why do we even need a SaaS contract?

The Purpose Of the SaaS Contract

The primary purpose of a SaaS contract is to outline what clients can access upon subscribing to a software service. These contracts specify the chosen tier, customer rights and contractual obligations, and subscription costs, providing clarity to both parties.

Moreover, SaaS service agreements also safeguard the interests and rights of the company offering software as a service. But how?

• They define permissible usage of the licensed software, prohibiting actions like sharing or engaging in illegal activities.
• Additionally, clauses are included to limit liability in the event of a data breach, safeguarding the company against losses resulting from hacking incidents.

Note: SaaS agreement details can vary depending on the services offered by the providers. For example, Adobe offers monthly or yearly subscriptions. While others adopt a pay-as-you-go model, wherein customers only pay for the software when actively using it.

Now that we've covered the foundational aspects of SaaS contracts let's explore the key clauses that require attention in every SaaS contract.

Key Clauses To Understand In Every SaaS Contract

Various SaaS contracts incorporate unique terms and clauses influenced by industry specifics, provided products, or offered services. However, all cloud service agreements commonly include certain standard clauses:

1: Scope Of License

The authorized use clauses in a SaaS agreement typically encompass:

• Specification of permissible access and usage methods for the services.
• Identification of the SaaS services accessible and the permitted extent of access and usage.
• Stipulation of user limitations or other defined constraints on access and usage.

It's important to note that while a SaaS vendor might exclusively offer SaaS services, they often serve multiple clients through a multi-tenant model of software service distribution. Additionally, software vendors may restrict the licensed field of use, confining it to your specific business sector, market, or industry.

2: Limitation Of Liability

The Limitation of Liability clause within a SaaS contract protects SaaS vendors from legal claims by contractually mitigating end-user liability for damages. This clause restricts a user's ability to seek full recovery for losses incurred due to software problems or malfunctions.

However, the framing of the Limitation of Liability clause by the SaaS vendor hinges on the risks associated with their specific SaaS product. Commonly utilized forms in SaaS licensing agreements often contain limitations of liability that favor the vendor. These typically include a disclaimer followed by a statement outlining the maximum damages a vendor could potentially be liable for under the agreement.

3: Ownership And Security Of Data

Defining data ownership in SaaS agreements is crucial as the software provider and users generate substantial data. It's important to specify who owns the data entered into the platform since the software provider's hosting of customer data can sometimes blur ownership lines.

To ensure clarity, it's vital to examine data storage practices and any associated access restrictions. SaaS agreements should also encompass a privacy policy outlining how the service provider utilizes user data.

4: Customer Service And Support

The Customer Service and Support clause is pivotal in detailing the assistance and support provided by the SaaS vendor. It encompasses response times and commitments regarding the expected quality and level of service. This clause outlines the vendor's dedication to providing timely and reliable customer support.

5: Subscription plan, model, and pricing

The Subscription Plan, Model, and Pricing clause within the contract includes the subscription plan and how the SaaS vendor will render their services. It provides details regarding costs, outlining the method and timing of charges.

SaaS contracts typically adopt a subscription model with payment basis such as monthly, quarterly, or annually. Under this model, customers make regular payments to maintain access to the service or product.

However, it's crucial to note the various types of SaaS pricing models:

• Flat-Rate Pricing: Offers a single product with a fixed set of features at a specific price.
• Usage-Based Pricing: Operates on a pay-as-you-go structure based on actual usage.
• Tiered Pricing: Provides multiple packages with varying feature combinations at different prices.
• Per-User Pricing: Involves a fixed monthly cost per user, with additional users increasing the overall expense.
• Per-Active-User Pricing: Charges only for users actively utilizing the software, irrespective of the total number of registered users.

Each model holds distinct advantages and considerations that should align with the needs and usage patterns of the customer.

6: Tenure, renewal, and termination

The Tenure, Renewal, and Termination clauses in SaaS contracts often span a typical duration of one year, with some extending to 3-5 years for larger enterprises.

Typically, SaaS contracts feature an evergreen renewal, automatically extending for another term unless actively terminated before a specified date. This feature, common in subscription-based agreements, streamlines the process, saving time and resources compared to renegotiating each term.

To opt out of automatic renewal, you must give notice within a specified period. Missing this notice window might result in being locked into another renewal period.

Moreover, termination for convenience clauses in SaaS agreements permits contract termination for any reason, usually with a notice period that can be negotiated, typically ranging from ten to ninety days. Leveraging AI-powered software can expedite the identification of automatic renewal clauses and other pertinent terms, facilitating more efficient contract reviews.

Now that you've delved into various clauses, exploring different types of SaaS contracts could provide further insights.

9 Different Types Of SaaS Contracts

Listed below are the different types of SaaS contracts that you need to be familiar with to avoid getting into the wrong agreement:

1: SaaS Service Agreement

SaaS Service Agreement, also referred to as a SaaS Agreement or SaaS Master Service Agreement, is a contractual document that defines the relationship between the SaaS provider and customers. It establishes the right for customers to access the provider's SaaS product via the cloud instead of purchasing the software outright.

This agreement outlines the specific software access granted upon subscription, detailing features, service levels, and agreed-upon payment terms.

Key components of a SaaS Service Agreement should include-

• Identification of available SaaS applications and transparent pricing details, specifying how and when costs will be charged.
• Agreement duration, outlining terms for termination or renewal.
• Data security provisions addressing ownership and rights to provided data, including a clear statement on software intellectual property ownership.

2: SaaS Service Level Agreement

The SaaS Service Level Agreement (SLA) can exist as a separate document or a section within the SaaS Service Agreement. Its primary aim is to set minimum performance standards for the service level offered to customers, particularly focusing on service availability.

Balancing certainty without exposing oneself to excessive liability is crucial. Promising uninterrupted SaaS availability 24/7 throughout the year may be impractical due to external factors beyond one's control. Therefore, it's essential to commit only to services that are realistically achievable.

Key elements to include in a SaaS Service Level Agreement-

• A detailed description of the services and functionalities provided by the SaaS product, integrating performance indicators, metrics, and quality benchmarks.
• Response times for time-sensitive issues and a guaranteed software uptime.
• Stipulated penalties if the guaranteed standards are not met, alongside critical exclusions that exempt the provider from penalties or security obligations related to software maintenance.

3: SaaS Subscription Agreement

Pricing holds immense significance in SaaS agreements, often becoming a central point in B2B negotiations. While some SaaS services adopt a pay-as-you-go model, where clients pay only for utilized software, most opt for a subscription-based approach. In this model, customers pay for continual product access at regular intervals, typically monthly or yearly.

Depending on client requirements, the SaaS Subscription Agreement might exist as a section within a broader SaaS Services Agreement or as a distinct contract.

Key components of a SaaS Subscription Services Agreement include-

• Detailed delineation of the chosen subscription pricing model, considering various common SaaS pricing models.
• A comprehensive payment schedule outlining recurring billing cycles (monthly or annually) and specifying the amount due in each cycle.
• A clear statement outlining the services provided to the customer and the delivery method.

4: SaaS Licensing Agreement

The necessity for a SaaS Licensing Agreement differs from that of a SaaS Services Agreement, indicating distinct purposes.

While many of us use SaaS-hosted applications daily—like Gmail, Office365, and Dropbox—where users access the software online without physically obtaining a copy, a SaaS License isn't applicable in these scenarios.

A SaaS License is specific and rare, employed only when an organization's end users are provided with actual copies of the software, typically installed on their computers.

It's crucial to differentiate between a SaaS Services Agreement and a SaaS Licensing Agreement. Using a license instead of a service agreement might lead to unintended consequences for SaaS vendors.

In rare cases where a customer installs a copy of the software on their computer, a SaaS Licensing Agreement becomes necessary. If a Software License is required, it should include:

• Clear delineation of the license type provided to the customer, specifying whether it permits software usage on one or multiple computers at the same location.
• Details concerning the rights to the application retained by the licensor encompassing software, name, copyright, distribution, and intellectual property rights.
• A stipulation preventing the licensee from transferring the license to another party or modifying the software, with specific details outlining what constitutes "modification," possibly restricting modifications altogether.

5: SaaS End User License Agreement

The distinction between a SaaS EULA and a SaaS Services Agreement is straightforward: one pertains to the provision of software services, while the other is a license allowing software use under specified terms.

When comparing a SaaS Software License Agreement and a SaaS EULA, the difference lies in the direct relationship between vendors and their customers. The former applies when the vendor's application is installed and operated on the customer's hardware. At the same time, EULAs are relevant when distributing software through intermediaries, such as releasing an app on app stores.

EULA terms are one-sided, granting users a license to utilize the app, with users consenting to these terms before software download.

A SaaS company providing software licenses should have an EULA. However, if merely offering access to services via the cloud, neither contract type is applicable.

Key inclusions in a SaaS End User License Agreement (EULA) encompass-

• A clear statement clarifying the license for software use, emphasizing permission for usage, not ownership transfer.
• Explicit mention that unauthorized software usage may result in legal consequences.
• Defined permissible software usage, coupled with stringent prohibitions against:
• Leasing, transferring, distributing, or selling the license to third parties.
• Modifying, copying, or reproducing the software to create derivative works.
• Engaging in illegal or unintended software usage as defined by the licensor.

6: SaaS Terms & Conditions

Think of SaaS Terms and Conditions as the guidelines for using a website or app. While not legally mandated, they are prudent for companies to implement.

These terms essentially outline user conduct, specifying permissible and prohibited actions on the site or app in exchange for the services offered. They establish ground rules to maintain software functionality and ensure fair play.

These rules provide protection for users, delineating acceptable behavior and actions to avoid repercussions for themselves or the company.

Key inclusions in SaaS Terms and Conditions encompass-

• Explicit delineation of actions users are prohibited from undertaking, such as damaging the site or its reputation.
• A clear termination clause enables the company to swiftly remove users misusing the platform, safeguarding the site and other users.
• Clarification regarding the company's intellectual property ownership and stipulations on user utilization without permission. If users can share content, provisions for reporting unauthorized intellectual property usage should be outlined.

7: SaaS Reseller Agreement / SaaS Distributor Agreement

Often, SaaS companies prefer collaborating with local partners to market their software in foreign countries where they lack a direct presence.

In such instances, they engage with local SaaS resellers or distributors and formulate a SaaS Reseller Agreement. The reseller purchases the software to sell to their local clientele, employing their terms and conditions.

The SaaS company doesn't engage directly with the reseller's customers; instead, the end customer enters into a SaaS license agreement with the reseller. However, the SaaS Reseller Agreement delineates the relationship, rights, and responsibilities between the SaaS company and the reseller.

Key inclusions in a SaaS Reseller Agreement encompass-

• Clear delineation of jurisdictional laws governing the agreement if the SaaS vendor and reseller operate in different countries.
• Specification of intellectual property ownership and the delineation of necessary rights and licenses for seamless contract functioning.
• Establishment of a software maintenance and update plan. Generally, as the SaaS provider, you would be responsible for ensuring the software remains current and well-maintained throughout the contract duration.

8: SaaS Channel Partner Agreement

A SaaS Channel Partner aids in promoting your SaaS to new audiences and receives rewards for each new customer they bring in, often in the form of cash, sales commissions, or other incentives.

This collaboration enables broader customer reach, extends brand influence, and establishes a mutually advantageous customer exchange channel.

Prominent SaaS companies like HubSpot, SEMrush, Zendesk, and Databox initiated successful SaaS Channel Partner Programs early on, contributing to business growth, revenue increase, and accelerated development.

To govern the relationship with your SaaS Channel Partner, a comprehensive SaaS Channel Partner Agreement should include the following:

• Clear delineation of rights and responsibilities for both parties, incorporating terms and guidelines for marketing and advertising activities.
• Incorporation of a confidentiality clause safeguarding both companies from trade secret disclosure, specifying intellectual property ownership in your product, website, and marketing materials.
• Detailed payment particulars, specifying amount, timing, and method for compensation related to each activity. Additionally, it should outline the agreement's duration and circumstances leading to termination.

9: SaaS Referral Agreement

This contract facilitates a company referring potential customers to your SaaS company, earning a commission based on a percentage of the deal's value.

Key Inclusions in the SaaS Referral Agreement-

• Referral Types and Qualification Criteria: Explicitly define the types of referrals eligible for commission and outline the criteria for a 'qualified referral,' including specified timeframes and agreed-upon formats for referrals.
• Payment Details: Clarify the commission structure, including how often payments will be disbursed. Additionally, articulate procedures for handling returns and credits related to referrals.
• Non-Exclusive Agreement Acknowledgment: Acknowledge that this agreement is non-exclusive, allowing both parties to recommend similar products and collaborate with other partners without exclusivity constraints.

Now that you have explored all the types of contracts, you might have understood how difficult it is to manage these legal terms and conditions.

Fortunately, there's a solution: an advanced SaaS management platform. This platform is designed to help manage, govern, and provide full transparency for all legal SaaS contracts.

While several platforms are available, Zluri stands out from the rest. Why Zluri? What features does it offer? Here's a quick read-through.

How To Manage SaaS Contract Effectively?

Zluri offers an advanced software as a service management solution that helps manage SaaS contracts and provides complete transparency into these legal agreements. It ensures you stay informed about established terms and avoid potential legal consequences. How does it do that? 

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Manage All Your Contracts In One Place

Zluri's SMP brings down all your contract details (like its value, payment terms, and quantity) in a centralized dashboard, making the details accessible in one organized space. So that your team no longer needs to go through the tedious process of searching for each contract present within the organization.  

Furthermore, this holistic view makes it easier for your team to manage contracts efficiently.

Auto-Fetch Contract Details Through Integrations

Zluri's SaaS management platform seamlessly integrates with diverse applications to automatically fetch precise contract details.

These contract details help your team identify contract initiators, detect underutilized contracts, monitor contract statuses, and analyze usage patterns. These real-time insights also become invaluable for making necessary adjustments to licensing to ultimately save on SaaS spend.

Stay On Top Of Renewals With Zuri's Renewal Calendar

Zluri's SMP offers automated renewal reminders, providing timely alerts and notifications to your team and ensuring no contract renewal dates are missed or overlooked. With these renewal reminders, your team can plan for contract continuations, discontinuations, or renegotiations for better deals well in advance.

Note: For contracts, you get alerts 30 days, 15 days, and one day prior to expiration. For payment, you get seven days and 1-day alerts before expiration.

SaaS Contracts: A Legal Binding That Cannot Be Overlooked

To sum up, SaaS contracts are essential agreements between software providers and users, outlining rules for using software services. These contracts come in different forms, each serving a distinct purpose in clarifying rights, responsibilities, and obligations. Also, these contracts demand careful consideration and attention to detail.

Be it SLAs, which concentrate on ensuring service availability, or SaaS Distributor Agreements, which detail the terms for resellers or distributors to sell the SaaS product to their customers, you need to go through each contract precisely. Neglecting to pay attention to the details of these contracts can have serious consequences, such as legal conflicts, financial setbacks, and strained relationships.

So, to avoid such situations, you can consider opting for a SaaS management platform like Zluri. Solutions like this will help you easily manage multiple SaaS contracts and ensure you stay compliant with terms.

FAQs

How To Create A SaaS Contract?

To SaaS contracts you need to follow the given below steps:

Step 1: Input client information and subscription dates.

Step 2: Choose the subscription tier and fill in payment details.

Step 3: Adjust licensing terms with legal guidance if needed.

Step 4: Proofread for any necessary revisions.

Note: SaaS contract management requires attention to detail. So, to avoid any inaccuracies, you can work with your legal team to create the SaaS contract template or agreement.

When Do We Need A SaaS Contract?

SaaS contracts become essential when a company decides to licenses cloud-based software rather than selling it directly. Any entity licensing such software needs well-defined terms and conditions to prevent legal complications and potential revenue loss (which can occur due to unclear terms, limits, and liability issues).

Can SaaS Contracts Be Customized To Suit Specific Business Needs?

Yes, SaaS contracts can be customized to meet specific business needs. Customization may involve adjusting service scope, pricing, user access, and other terms to align with the unique requirements of a particular business. The extent of customization can vary among SaaS providers.

Can A SaaS Contract Be Terminated Before The End Of The Agreed Term?

Yes, a SaaS contract can be terminated before the agreed term ends. However, one needs to note that it should be stated in the terms and conditions of the contract.

What Happens To The Data After The Termination Of A SaaS Contract?

After a SaaS contract ends, the fate of the data depends on the contract terms. It could be kept, deleted, moved, or follow special rules outlined in the agreement.

What Are The Limitations Of SaaS contracts?

SaaS contracts have some limits, for instance they cannot protect organizations of all types of liabilities. For example, if a customer uses the SaaS service for something illegal, like selling drugs, the provider might still be responsible, even with a contract.

Also, if the company has unexpected downtime or privacy problems, clients might be able to sue the SaaS provider. Even though contracts usually have rules about this, they might not always work in every place.