What is a SaaS Agreement?

A Software-as-a-Service (SaaS) Agreement is the agreement a SaaS provider makes with their customers to set out the terms under which SaaS software may be accessed and used. 


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What is a SaaS Agreement?

SaaS stands for Software-as-a-Service. SaaS Agreements are made between SaaS providers and their customers, most typically for larger scale SaaS deployments and enterprise arrangements where it is imperative that there is a clear and legally binding agreement.  

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What is SaaS?

If you’re considering drafting a SaaS Agreement, chances are you know what SaaS is. Put simply, SaaS is a software delivery model in which users access centrally-hosted software remotely. 

SaaS is becoming the dominant force in the software market, with examples including Google’s Workspace applications, Netflix and Dropbox. And these are just examples in the public-facing sphere- SaaS is also increasingly used across different industries, covering customer relationship management, HR needs and more.

When is a SaaS Agreement used?

SaaS agreements are typically used in larger scale or complex projects, due to the increased need for clarity regarding terms of use. SaaS Agreements particularly focus on governing aspects such as:

  • Costs
  • Features
  • Uptime
  • Usage
  • Analytics

SaaS Agreements are also more commonly used in larger projects to ensure homogeneity of use terms between different users. By their nature, a lot of SaaS applications will have users globally, and whilst different levels of service may be offered, the basic terms and conditions on which these users access the application needs to be the same. 

What should a SaaS Agreement include?

A SaaS agreement should cover these areas:

Details of the subscription service

The SaaS agreement must spell out the services the customer is subscribing to, including any use limitations and terms of use. 

Duration of the subscription

The minimum duration of the subscription before the user can cancel the service. You may also hear this referred to as the ‘commitment period’, and the length of this will depend on the type of SaaS and the business strategy of the developer.

Cancellation Terms

These are the terms under which the Agreement can terminate, including violations and terms of fair use. The terms might include:

  • Duration of a minimum commitment period
  • Conditions of the Service-Level Agreement (SLA)

Typically, basic SaaS solutions make it easy for customers to come and go. However, enterprise-level commitments usually have more extended commitment periods and stringent cancellation policies due to the upfront work necessary in tailoring the SaaS for the customer’s business.

Service Level Agreement (SLA)

SLAs are typically reserved for enterprise clients who make large upfront investments on the platform. An SLA must include minimum levels of expected service. Typical SLA metrics are:

  • Response time to requests and problems
  • Support hours and channels for making help requests
  • Unscheduled downtime limits

These commitments must be measurable and reportable to customers on request. Typically, if there is a failure on the platform or a violation of service levels, the vendor should provide a remediation plan. 

Usually, there are penalties such as service credits or refunds for breaching an SLA. 

Amount of upfront and recurring subscription fees

Most SaaS platforms will typically have a monthly service fee, which can be billed monthly or annually (often at a discount).

Why use a template to draft a SaaS Agreement?

As with many tech-companies, SaaS providers can grow big quickly so it is all the more important for your SaaS Agreements to be watertight from the start. 

Using a template not only gives you the comfort of knowing that all of the basic terms are covered, it also enables you to better future-proof your SaaS project. 

The Zegal template also features different customisable options for terms in the SaaS Agreement. Not only will this make your SaaS Agreement look professional, it will also aid you in the negotiation process of taking your SaaS project to the next level. 

Is a SaaS Agreement the same as a License Agreement?

No. Whilst they often contain similar terms, a SaaS Agreement governs a customer’s use of the application (a service) whilst a licensing agreement governs the distribution of an application as a product (including eventual use of the application). 

Crucially, licensing software will typically involve receiving a downloadable copy of the software, whereas SaaS instead features accessing a single copy of the software available to all users. 

Luckily, whether you need to draft a SaaS Agreement or a Software License Agreement, Zegal has you covered. 

Related Zegal Legal Templates 

When creating a SaaS agreement, Zegal also recommends creating the following documents from our extensive template library.

Terms of Service

Having a Terms of Service (or Terms and Conditions) helps protect a SaaS provider from potential liabilities and helps you prevent clients from abusing your services or using your services in an unlawful way.

Privacy Policy

If you collect personal information, it is always good to have a Privacy Policy that spells out how you will use the client’s data. The reassurance that you will not remarket a client’s personal information without due consent is important to many subscribers. This is also vital if any GDPR provisions apply.

SaaS Software License Agreement

SaaS and Licensing Agreements are different from one another. Under a SaaS agreement, there is no exchange of physical goods. Under a licensing agreement, the company will typically deliver both software and hardware. 

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