A SaaS agreement, or software-as-a-service-agreement, outlines the terms and conditions for users who purchase a service license agreement from a SaaS company. An important element of a SaaS agreement is data protection and the protection of intellectual property.
Suppose you are a SaaS provider looking to learn how to write a SaaS agreement. In that case, this article contains 14 things to include in a service license agreement.
1. Start and End Dates
Firstly, the software agreement should clearly state the start and end dates of the service license agreement. As clients pay to access a service they access over the internet, it is important to clearly state how long they will have access to those services based on their contract.
The end date in a SaaS software delivery model refers to one of two things:
- The end of the contract, which terminates all services.
- The renewal of the contract, which creates a new start and end date.
In each client's contract, it is important to note whether their subscription is set for auto-renewal. This can prevent any disputes over unauthorized charges in the future.
Here is an article that outlines the software-as-a-service delivery model.
2. Access Rights and Users
The software agreement should describe who can access the software and their rights to the service they have paid for. There are often caps for the number of users under a given subscription, which could be clearly expressed in the contract.
You can also prohibit subscription sharing. A user who pays for your service allows a third party to access and use the software under their name.
Employing a single-use parameter can save your company money and encourage upgraded subscriptions for account holders who require more than one party to access your service.
3. Customer Support and Services
SaaS clients rely heavily on customer support services to glean the greatest benefit from their subscriptions. Therefore, the SaaS agreement can include a description of what types of customer support services they can access and what types of support your company will offer.
It can be helpful to state how the user should access support, such as via telephone, chat, or email.
Customer service clauses can also help the company avoid liability in data loss, corruption, or damages between customer support response times. However, there can also be limitations regarding what issues the customer service representatives will and will not help resolve.
Here is an article that explains customer service agreements in more detail.
4. Data Ownership
In a SaaS licensing model, many clients are unsure how their data is collected, stored, or even owned by the company. This is one of the most important elements of any SaaS contract, particularly with a cloud level service agreement.
In theory, information that is centrally hosted could be accessed by anyone. Therefore, customers will want complete assurance that their personal information and even their own customers’ data is protected.
In addition to specifying what data is collected and where it is stored, you could also include any restrictions and limitations in regards to:
- Data access
- Transmission
- Sales
Many SaaS companies keep client data after the end of their agreement or termination of services for marketing purposes and historical documentation. Therefore, the SaaS agreement should detail how long the company keeps previous clients’ information and what they do with their data.
If you are unsure about the limitations of data ownership, contacting a SaaS contracts attorney can help.
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5. Subscription Notification Length
It is important to give clients a fair amount of time to decide whether they will renew or end their subscription with your company. A subscription notification length clause determines how far in advance your company will notify clients that their contract is close to ending.
For example, you may send clients a subscription notification and renewal offer no less than 30 days before their contract’s end date.
Likewise, you can require clients to notify your company of their intent to renew a subscription no less than 30 days before its termination. This can help your company save money and avoid providing ongoing support to a client who may or may not renew.
You can set your subscription notification length to respect your business’s scale and agreements. For example, companies with a smaller, more manageable consumer base may be okay with 30-day notification periods. In contrast, others may need clarification on customers’ account status sooner.
60 and 90 days are the second and third most common notification lengths.
Here is an article about how to manage a SaaS renewal.
6. Total Contract Value
Most SaaS software licenses are purchased for a fixed period, such as three or five years. Therefore, the contract should specify how much the entire amount a client will pay to determine their total SaaS agreement cost.
For example, a person may sign up for a 5-year subscription but only pay monthly. Their contract should state how much they will pay and owe the company for the 5-year subscription in total, including any additional fees or sales tax.
The total contract value prevents clients from being surprised by large charges. In addition, it stops companies from unfairly applying additional fees to their clients’ accounts.
Having clients sign an agreed contract with the total contract value also helps you, as a business, perform clearer financial forecasts.
7. Service-Level Agreement
The service-level agreement outlines what the vendor provides the customers as well as the customers’ objectives and expectations. There are many variations of service-level agreements depending on the type of software used.
However, regardless of industry and application, there are specific points every service-level agreement may include. These are:
- The type and scope of services provided, as well as their uses
- How the quality of services will be measured
- Expected uptime and potential downtimes due to maintenance
- Details related to billing
- Security and regulation compliance
- Penalties that the company can face if their product does not fulfill expectations or meet their expressed standards
Essentially, the service-level agreement defines what services a client receives and how that product is likely to perform. It also provides customers with performance metrics that they can use to seek compensation or restitution should the service not perform as the company promised.
Here is an article with more information on SaaS service-level agreements.
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8. Consumption Metrics and Billing Units
SaaS companies track consumption to bill their users accordingly. These price points, or costing units, directly influence how much consumers will pay for their service.
For example, there may be a limit on how many emails a customer can send through a SaaS platform in a given period. Exceeding that limit can incur additional fees.
Understanding consumption metrics allows consumers to modify and optimize their SaaS experience to suit their budget. Many SaaS providers also offer discounts for users with higher consumption, benefiting consumers’ bottom line and efficiency.
9. Data Handling and Regulatory Compliance
Data handling and regulatory compliance must be described in accordance with all relevant governing parties. Protecting consumer data through privacy policies is important to running a reliable SaaS business.
Ensure that every SaaS agreement outlines how personal data will be collected, processed, and handled internally. Companies must also ensure that their policies comply with privacy regulations in their jurisdiction, such as the European GDPR or Californian CCPA.
Here is an article with more information about privacy regulations in America.
10. Licensing Rights and Access
A SaaS agreement's licensing rights and access portion defines how users are permitted to use the software during their subscription. This can help prevent issues such as:
- The misuse of intellectual property
- Exploitation
- Unfair distribution
- Unauthorized access
The SaaS company should specify exactly what services a client can use their product for and what users can access the software. It can also include any relevant limitations and restrictions to licensing rights and usage.
11. Warranties
Warranties assure the consumer that the service will work as expected and advertised. As a result, SaaS companies can provide greater value to consumers by offering warranties on their products.
A SaaS contracts lawyer can help companies determine their product's fairest warranty type and duration. They can also draft a warranty clause for the SaaS agreement that ensures both the client’s investment and company mutually benefit from the warranty.
Here is an article that details the importance of a warranty in SaaS agreements.
12. Confidentiality
Many SaaS companies provide software that houses sensitive information. Therefore, the contract must voice the company’s commitment to maintaining confidentiality, from patient names and health records to personal information.
The software provider should also affirm their compliance with regulations like HIPAA. Confidential clauses provide customers security while protecting the company’s intellectual property.
13. Indemnification
Indemnification, or liability limitations, restrict the legal accountability of a company under certain conditions. For example, a SaaS liability clause can waive the company of any responsibility for personal injury, data loss from device malfunction, or damages the client incurs while using their software.
The liability limitations in a SaaS agreement will vary, and it is important to identify and cover the specific risks a company faces depending on its product/service. Rather than focus entirely on blame or fault, it is best to use this portion of the agreement to lay out provisions for a swift resolution in the event of a breach.
Here is an article that discusses an indemnification clause in a terms of service contract.
14. Signatures of Parties
Lastly, the SaaS agreement should include the signature of both parties. These signatures should only use the signer's legal names. This can be signed in person or through a secure electronic signature software.
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