Everything you should know about the SaaS contract

By Kishana Citadelle
Published: 11/4/21
definition backgroundEverything you should know about the SaaS contract

Properly designing or negotiating a SaaS contract allows you to make the best arrangements to market your software product or benefit from its service in complete security.

Whether you are a provider or a customer, it is important to know the main terms and conditions in order to obtain a suitable contract, to protect yourself in case of litigation and to avoid unpleasant surprises.

So, here is a look at the terms and conditions you need to know for the SaaS contract.

What is SaaS contract?

A SaaS software contract, or, as known as a software as a service agreement, is first and foremost a service contract, developed by Application Service Provider (ASP) model, establishes business between a company and a supplier involving the privacy policy, usage requirements, user restrictions and termination and geographical policy. It provides transparency on what to expect when using the service, as well as helps to stay informed on any updates.

What is SaaS?

It is how to use a service over the internet without having to install the software on your computer, while respecting the terms and conditions of the service in the contract set by the provider.

As it is entirely web-based, your software and data will be centrally hosted and users can have access to it and data anywhere over the internet, provided that they possess an internet connection and a web browser.

It intervenes after negotiations have occurred, users have given their consent, to establish the agreements found between the service provider and its customer, such as the modules to be activated and the pricing according to the subscription taken out.

What to look for when reviewing a SaaS agreement?

A SaaS agreement should serve as a term of mutuality or mutual business between the provider and the customer. It should protect both parties. For the provider, it is to ensure that the user is using the services the right way or else, they are to be held accountable if they have misused or violated the terms and conditions.

In addition, the user is provided to follow the agreements like:

  • Service-level guarantees,
  • Licensing requirements: how the user has access, or how you would like them to purchase, use manage your service, etc. You also take into consideration the types, whether it is to be implemented as a trial, demo, or periodically, such as, under a lease or subscription, not omitting the expiration date.
  • GDPR compliance: Under a SaaS contract, customers are responsible for ensuring that their provider's service is compliant with the GDPR
  • Term of use or permit
  • ​​Reversibility clause: It is important to include a reversibility clause in the Terms and Conditions. Within the framework of a SaaS contract, the customer's data can be entrusted to a third party who ensures the hosting.
  • Data storage
  • Restrictions

And the user should be aware of the way the vendor plans to use your data. Which is why, it is essential to check:

  • What the vendor means by data storage?
  • How will the data be collected?
  • The type of data that the vendor will collect
  • The length of which that data will be kept
  • And will that data be erased once your contract with them has been terminated

These simple processes will avoid any misunderstandings on both sides in the future as each will comprehend what is at stake here.

Is SaaS contract agreement a license?

If you thought so, they are not the same.

A "standard" or on-premise software is software installed directly in a computer from a hardware medium (installation disk, for example). As it is physically installed, the contract gives a customer the right to use the software package in exchange for the purchase of a license. Here, the company will distribute the software for a set or fixed period, usually like a single or monthly fee.

While in a SaaS agreement, the software services are delivered through the cloud. The customer gains access to them online, therefore allowing use of a product instead of allowing product use as a service.

Furthermore, a software in SaaS mode is a service directly accessible and use online. Not involving any purchase of a license, it is more flexible and economical than the software license contract:

  • It is accessible remotely and immediately through a web interface, without downloading or installation on its own machines;
  • It does not require storage space, because the data is saved in the cloud;
  • Its updates and maintenance are managed by the provider and the company does not have to worry about them;
  • It offers scalable and à la carte pricing, depending on the needs and uses of the recipient company.

Their objects are therefore different: one relates to the right to use a software, while the other defines the terms and conditions of the use of a service.

The essential clauses of the SaaS contract

With SaaS software, publishers have control over the entire service, including the data and the information systems infrastructure.

Which is why the contract is of paramount importance to define the provider's scope of intervention and the right to use the service over a given period.

Here are the main points to take into account during your negotiations.

Subscription

The customer does not pay for a license, and therefore takes out a subscription. The contract determines the terms of the chosen subscription:

  • the rates,
  • the payment terms,
  • the frequency of payment statements, etc.
  • It is recommended to find out in advance what the pricing includes. Additional costs may be incurred for certain overruns that occur after the contract is signed (e.g. storage, premium support, API calls, etc.).

Service performance

A clause dedicated to the performance of the applications can be included to guarantee a short response time. For example, several network connections can be provided with the SaaS application to limit latency

To protect itself, the service provider can also insert a clause to inform the customer of Internet hazards that may cause lower performance or interruption of services.

Service availability and updates

The period of availability of the service and of maintenance must also be included in the contract. A clause to this effect will ensure the service provider is committed to their 24/7 availability of the SaaS software to its customer.

This same clause will include details on maintenance-related interventions, such as:

  • the frequency of updates provided by the provider,
  • the time required to handle breakdowns and other technical problems,
  • the technical assistance provided.

Data ownership/ security

It ensures the security of the service and data, that the parties agree to implement the technical methods according to the following aspects:

  • That they respect the integrity of the data,
  • They protect the confidentiality of the data used and stored within the service,
  • The encryption of sensitive data,
  • They can provide data traceability, etc.
  • That the Provider is responsible for implementing measures to limit fraudulent use of data and to prevent loss or corruption of data.

Support

It is essential to work with a provider that offers support, in case any malfunctions were to happen. Some companies offer 24/7 customer service via phone or email.

If the assistance is by phone, it is important to note the availability indicated, the free times of the advisors, especially when if there is an issue of time difference between the provider and the customer.

The list of vigilance points is not exclusive and depends on the type of SaaS contract. Always check the conditions and stay informed of any updates.

Transparency is an essential value for Appvizer. As a media, we strive to provide readers with useful quality content while allowing Appvizer to earn revenue from this content. Thus, we invite you to discover our compensation system.   Learn more
Tip backgroundInternational SaaS Strategy- Do's and Don'ts
Tip
last month
International SaaS Strategy: Do's and Don'ts
Deciding to move your SaaS startup can be a hard and demanding task. Are you looking to take your business to the next level? Take some time out of your day and find out the answers to these questions and steps your SaaS startup has to take to move towards a successful and profit producing global expansion.
Definition backgroundWhat does CRM stand for? 7 reasons why you need CRM software
Definition
last year
What is SaaS as a part of cloud computing?
SaaS, or Software as a Service, is a model for making software and applications available remotely, via the cloud service. Examples and advantages.