Overview of a SaaS Agreement

What is a SAAS Agreement?

A SaaS Agreement is a contract between a supplier and a customer of a SaaS (Software-as-a-Service) solution.

Essentially, SaaS Agreements set out the terms and conditions on which the supplier will provide the SaaS solution to the customer. This includes the supplier’s disclaimers and limits on the supplier’s liabilities in providing the SaaS solution.

Importantly, a SaaS Agreement sets out the service level agreement committed to by the supplier. For example, the services uptime commitment, how the services uptime metric will be measured, the commitment in responding to requests and problems. And, service credit entitlement if the services uptime metric is not met.

What is in a SaaS Agreement?

A SaaS agreement must cover these areas:

Details of the subscription service: Firstly, the SaaS agreement must spell out the services the customer is subscribing to.  This includes any limitations of use and terms of use. Additionally,  features that the user is will get based on the plan being purchased.

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.

Cancellation Terms: Terms under which this agreement can terminate.  This can include violation of terms of use or fair use. Or, if the client has gone past the minimum commitment period. Or, if the SLA has not been met.  Typically, turnkey SaaS solutions make it easy for customers to come and go.  However, enterprise-level commitments usually have longer commitment periods and more stringent cancellation policies. This is due to the upfront work necessary on the platform for configuration and customization.

Service Level Agreement (SLA): Essentially, an SLA must include minimum levels of service that must be met by the SaaS platform.  Subsequently, these service commitments must be measurable and reportable to customers on request.  Typically, if there is a failure on the platform or if there is a violation of service levels, the vendor should provide a remediation plan.  Usually, failing the remediation plan, then there are penalties such as service credits or refunds.

Examples of SLA metrics include:

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

Note that SLAs are typically reserved for enterprise clients who make large upfront investments on the platform.

Amount of upfront and recurring subscription fee: Most SaaS platforms will typically have a monthly service fee. This can be billed monthly or annually (often at a discount).  Typically, upfront fees are not charged unless they involve are significant setup costs.

When should you use a SaaS Agreement?: Typically, a SaaS agreement is necessary for larger enterprise contracts.  These contracts have customizable terms to meet the IT requirements of the client.  For platforms where clients self-register and can start using the platform, an agreement to the Terms of Service is usually a tick box online along with the entry of a credit card number for online payment.

Essentially, you can use Zegal’s SaaS agreement to begin negotiations with larger clients.

Should You Include an SLA (Service Level Agreement)?: Typically, an SLA is for larger engagements with enterprise clients.  For turnkey SaaS solutions, clients can usually expect an environment free of service outages.  In addition, cancellation is typically easier if the service levels have not been met.

What Other Documents Should You Look At?

Terms of Service: Having a Terms of Service (or Terms and Conditions) helps protect a SaaS provider from potential liabilities.  It also 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.

Conclusion

Creating a comprehensive SaaS agreement with your client provides clear expectations on the types of services that you will deliver, protecting both sides from service issues.  Should you get a lawyer to review your agreement?  Yes, you should always ensure a lawyer reviews all the different terms and conditions and then draft a standard template that can be reused by all clients.  A SaaS business thrives on uniformity to be able to scale.  Having bespoke versions will make that task harder.

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