Guest post by Moyofade Ipadeola.
Legal agreements are essential in any significant business relationship and Software as a Service) (SaaS) business arrangements are no exception. Sadly, not many people take documents such as SaaS agreements and software end-user license agreements (EULAs) seriously.
Studies show that over 90% of people consent to agreements without reading them. This attitude can harm any business relationship in the long term.
Crafting an agreement that serves the interest of both parties should be a priority for a SaaS vendor. Likewise, scrutinizing the details of a SaaS agreement before accepting it should be a habit for the consumer. This post outlines what a SaaS agreement is, why you should have one, and key terms to watch out for in your next SaaS agreement.
What is a SaaS agreement?
A SaaS agreement is a legally binding contract between a SaaS vendor and the consumer. This agreement details the terms and conditions of how the product is accessed and used. A SaaS agreement covers topics like usage requirements, data collection, pricing terms, termination and renewal, among others.
Difference between a SaaS agreement and a software license agreement
Though they are similar, there is a difference between a SaaS agreement and a licensing agreement. A licensing agreement involves a company physically delivering and installing software and its attendant hardware. In this agreement, customers have the right to copy and utilize the software. This contract also protects the vendor’s patents, copyrights and intellectual property rights.
A SaaS agreement, on the other hand, gives consumers permission to access the software via the cloud, and their use is only through a subscription. The main difference between a SaaS agreement and a software license agreement is that a software license agreement involves a one-time payment and complete ownership. In contrast, the SaaS agreement is strictly based on a pay-as-you-go subscription.
Why should you have a SaaS Agreement?
A Software as a Service Agreement is crucial for both vendor and consumer and must be written carefully. Any errors or omissions can create headaches for either party. Here are some advantages of having a well-drafted SaaS agreement.
It provides clear upfront expectations.
A SaaS agreement contains all the expectations for both parties, especially the consumer. The details of what to expect from the service is clearly written, leaving no room for ambiguity or assumptions. It prevents the consumer from demanding anything not included in the agreement, and compels the vendor to fulfill the promises made in the contract.
It avoids conflicts.
Signing a SaaS contract leaves little room for conflicts in the future. If there are any breaches, the aggrieved party can refer to the terms in the agreement. There is no space for conflicts when the terms and conditions are clear.
It builds trust.
After mastering how to get the attention of clients and persuading them to buy, a vendor must build trust. A SaaS agreement helps the consumer trust the vendor. With the deliverables clearly stated in a contract, the buyer can be confident the vendor will deliver on their promises, as they are bound by the agreement. An agreement will also clarify the requirements for the vendor to meet the consumer’s expectations.
It promotes long-term business relationships.
A SaaS agreement facilitates compliance and builds trust. These are keys to building long-term business relationships. Consumers will stay with vendors who meet (or exceed) their end of the deal and even refer them to others. Now that reviews are beginning to matter for B2B businesses, drafting a solid agreement and sticking to the terms and conditions will help lead to positive reviews.
The benefits of a SaaS agreement for both parties are enough to ensure you insist on a well-drafted agreement whenever you’re subscribing to a new software service or selling a subscription to a user. In addition, the consequences of not having a well-crafted SaaS agreement in place are serious and avoidable.
Key terms to watch out for in your next SaaS agreement
To avoid being part of the population that signs agreements without reviewing them, your should familiarize yourself with the key terms. Carefully examine the following terms when signing your next SaaS agreement.
The subscription plan of the consumer is listed under this section. The details here include the plan, level, and price of the subscription. Also included in this section is the payment schedule and how the vendor will deliver the service to the consumer.
This relates to the extent to which the consumer is permitted to use the software. Both parties must understand that the permission is for the service, not the software. Therefore, EULAs are not included in SaaS agreements.
A SaaS agreement usually has a heading titled Scope of Permitted Use. This section states, in clear terms, the scope of the permission given to the user of the software. In this section, you’ll find the following details:
Specific service: This states that the consumer has no right to the physical copy of the software. The exact service that the consumer has subscribed to will be clearly spelled out.
Authorized technology: This details the technologies permitted to access and use the software.
Extent of access and use: The scope of permitted access and use must be explained in the agreement as well as the metrics used to arrive at such a scope.
Duration: The duration of the subscription must be specified.
Non-exclusivity clause: This states that the consumer does not have exclusive rights to the use of the software. The vendor can serve as many users as it wants.
Permitted territory: The area or region permitted for the use of the software must be identified. Some software applications are not permitted for use in certain countries. In those cases, the permitted territories are clearly stated in this section.
Transfer and assignment of subscriber rights: This section presents information about transferring or assigning the subscription to another consumer.
Data protection is a very sensitive issue and the modalities must be clearly stated in a SaaS agreement. The SaaS contract must stipulate what happens to user-generated data. The contract must establish ownership of the data as well as the responsibilities of each party regarding data security.
Details found under this section include:
Data protection process: This details how the vendor will protect consumers’ data.
User compliance: This establishes the responsibilities of the consumer for data protection.
Procedures for security breach: This explains what actions the vendor will take in the event of a security breach.
Data use upon termination: Spells out what happens to user-generated data after the termination of the contract.
The “limitation of liability” section states the circumstances in which the vendor will pay damages to the user and what the damages will be. These details vary from vendor to vendor, depending on their business risks. This section spells out the exclusion of indirect and special damages as well as the contractual damage cap.
Service Level Agreement
A Service Level Agreement (SLA) is very important and you should look out for it in any SaaS contract. It may be presented as a separate document or as part of a SaaS agreement. The following elements are typically included in Service Level Agreements:
KPIs and performance metrics: These are the services provided and the metrics to be used to measure performance.
Billing structure and pricing: Here you’ll find the billing model and the pricing of the service.
Penalties: These establish how the vendor will compensate the consumer if the performance standards in the SLA are not met.
Exclusions: This section spells out the circumstances in which the vendor is exempted from compensating the consumer. These are usually situations and events beyond the vendor’s control.
Any well-crafted SaaS agreement should contain the above-mentioned vital terms. Note that other terms may up in a SaaS agreement. However, those listed above are the most essential.
SaaS agreements are contracts between SaaS vendors and their customers. They can impact whether a business relationship will thrive or collapse. That’s why it is crucial to be familiar with the key terms in SaaS agreements.
The key terms to look out for in your next SaaS agreement include the subscription plan, permitted use, data security, liability limitation, and service level agreement. The benefits of a solid SaaS agreement are clear and upfront expectations, avoidance of conflicts, trust building, and promotion of long-term business relationships.