So you’ve created a super awesome SaaS product and sales are flying out the door – congratulations!
But the hard work doesn’t stop there.
The more you grow, the more SaaS contracts you need in place to govern the relationships with your customers and partners of all varieties.
And all your technical wizadry, sales acumen and motivational management skills simply won’t cut it – if you don’t understand how these contracts work!
You need to make sure you’ve got the right agreements in place to help you scale your operations and your customer base, whilst protecting your business needs and legal risk.
You’ve probably heard of a SaaS Agreement – but did you know there are 9 different types of SaaS contract that you need to know about?!
I know, crazy!
But don’t panic – we’re here to educate you and save you a ton of time and hassle.
We’ve got a full breakdown of these 9 types of SaaS contracts:
- Why you need these contracts for your SaaS business
- The purpose of each type of contract
- The difference between the types of SaaS contracts; and
- What you need to include in each of your SaaS contracts!
So you’ll avoid getting caught up in the wrong agreement or in unfavorable legal terms that you really don’t want to be on the hook for later!
Plus – you’ll be the envy of all your tech friends when you know the ins and outs of every SaaS contract you need to deal with!
So let’s get into the definitive guide to every type of SaaS contract you need to grow your SaaS business!
1. SaaS Service Agreement
A SaaS Service Agreement, or SaaS Agreement for short, refers to the contract that governs the relationship between you, the SaaS provider, and your customers.
These contracts can also be referred to as Master SaaS Agreements or SaaS Master Service Agreements.
When your customers sign up to your SaaS product, they’re not actually buying your software, but paying for the right to access it via the cloud.
A SaaS service agreement clarifies the access to your software that your customers receive when they subscribe to your service.
Your SaaS service agreements play a key role in making sure your customers know precisely what they’re going to get – the features they’ve signed up for, the level of service they can expect and the payment agreed between you.
Your SaaS Service Agreement should include
- A clear identification of the specific SaaS service applications that your customers may use, together with details of the prices agreed on and how and when those costs will be charged.
- The duration of the agreement between you and your customers, and how the agreement can either be ended or renewed.
- Data security provisions stipulating who owns what data and what rights you’ll need in the data that is provided to you, together with a clear statement that you own the IP in the software.
2. SaaS Service Level Agreement
A SaaS Service Level Agreement (SLA) can be a stand-alone document or a section of your SaaS Service Agreement.
The purpose of an SLA is to provide certainty or minimum performance standards over the level of service you provide to your customers; in particular – service availability.
The danger here is that the more “certainty” you provide, the more you open yourself up to liability exposure.
You don’t want to promise the SaaS will be available at all times, 24/7, every day of the year, because there are factors outside of your control.
Your SaaS Service Level Agreement should include
- The specific services and capabilities your SaaS product provides, including performance indicators, metrics and other measures of the quality of your services.
- Response times for time-sensitive issues and guaranteed software uptime.
- Penalties to be levied against you if those guarantees are not met and critical exclusions for which you will not have to pay such penalties or be responsible in any way for software maintenance.
3. SaaS Subscription Agreement
Pricing is one of the most important SaaS agreement terms and a huge area for negotiation in B2B deals.
Some SaaS services allow customers to pay as they go, only paying for the software when they use it.
But most SaaS companies typically run on a subscription model where your customers pay on a regular basis for continued use of your product, i.e. monthly and yearly subscriptions.
A SaaS Subscription Agreement can be a section of your SaaS Services Agreement or separated out into a different contract.
These agreements exclusively govern SaaS services provided by way of subscription.
Your SaaS Subscription Services Agreement should include
- A description of the type of subscription pricing model you and your customer will be entering into – here you can find the top 8 SaaS pricing models in use today.
- A full payment schedule with recurring billing on a monthly or annual basis together with the amount the client is expected to pay each billing cycle.
- A clear statement of the services your customer will receive, and how they will be delivered.
4. SaaS Licensing Agreement
Ok guys, I hope you’re with me so far because this is where things get a little technical.
Pay attention, because this is a big one:
The circumstances in which you need a SaaS Licensing Agreement differ SIGNIFICANTLY from the circumstances in which you need a SaaS Services Agreement.
In other words: they are not the same.
Let’s dive in.
So, we all use SaaS hosted applications every day – Gmail, Office365, Dropbox etc. In all of these examples, the end-user does not physically receive a copy of the software, but is simply granted access to the provider’s servers to use their software online.
A SaaS license does not apply here.
A SaaS License is a different thing altogether and is only to be used in specific (and pretty rare) circumstances – when a company’s end users are being provided by way of a license, with actual copies of the software.
WARNING: SaaS is a service, as the name implies, so in 99% of circumstances, you won’t need a license.
In fact, as a SaaS vendor, if you provide your customers with a license instead of a service agreement – you’re giving over something completely different than what you thought, and the license can come back to bite you!
So make sure you’re correctly using a SaaS Services Agreement.
Only in the rare circumstances that your customer will be putting a copy of your software on their computer – i.e. on-premise software – will the contract require a SaaS Licensing Agreement.
In the circumstance that you do indeed require a Software License, it should include
- A clear explanation of the type of license your customer will receive. The type of license will determine whether the licensee is allowed to use the software on one single computer or on multiple computers in the same location.
- Details of the rights to the software that will remain your property, even after execution of the contract. This includes the software itself, the name, the copyright, the distribution rights, and intellectual property rights.
- A clear statement that your licensee may not transfer the license to another party, nor modify your software in any way – with details of what “modification” means. Your best bet is to limit any modifications, if not completely restrict them altogether.
5. SaaS End User License Agreement
So not to confuse you any further, but a SaaS End User License Agreement (EULA) actually differs from a SaaS Services Agreement and from a SaaS Software License Agreement…
…stay with me, I’ll walk you through it!
The difference between a EULA and a SaaS Services Agreement is pretty straightforward: one is a contract to provide software services and the other is a license to use the software subject to specific terms.
Hope you’re with me so far. Here’s where it gets a bit tricky:
The difference between a SaaS Software License Agreement and a EULA is as follows:
A Software License Agreement governs the direct connection between you and your customers when your software is installed and operated on your customer’s (the licensee’s) hardware, and you (the original creator) retain ownership and control over the use of your software.
EULAs on the other hand are relevant for the distribution of a software app via an intermediary. For example when releasing an app for general use in the App Store or on Google Play.
The terms of a EULA are one-way and grant the user a license to use the app. Users must agree to the terms of the EULA (usually by way of clicking accept/agree) before being able to download the software.
Every SaaS company that gives customers licenses to use software needs to have a EULA.
But remember, unlike Apple, if you’re merely providing access to your service via the cloud – then neither of these types of contracts are relevant to you.
Your SaaS End User License Agreement (EULA) should include
- A clear statement that you offer a license to use your product only, not a right of ownership. Make it understood that you are granting the buyer permission to use your software — not own it.
- A clear statement that if the user infringes on your copyright of the software, you will hold the user legally liable.
- Approved usage of the software, together with strict restrictions on the user that they must not:
-lease, transfer, distribute or sell the license to third parties
-modify, copy or reproduce the software to create derivative works
-use the software in any way that’s illegal or unintended by the licensor
6. SaaS Terms & Conditions
In the context of SaaS, your ‘Terms and Conditions’ relay the rules and regulations of your platform to your customers.
While SaaS Terms and Conditions aren’t actually legally required, it is highly recommended for your company to include them on your site.
Your SaaS Terms and Conditions set out the rules under which your customers can use the site and state what you expect from each user in exchange for your service.
These rules preserve the integrity of your software and protect your reputation and control over your site.
They also protect your customers – ensuring that your users’ interaction with your service doesn’t land you or them in hot water!
Your SaaS Terms and Conditions should include
- A clear statement on the prohibited use of your software, including a list of actions your customers may not take, including actions that damage the site, its reputation, or its intellectual property.
- A clear termination clause that reserves your right to end access or remove the accounts of users misusing your platform. This term is essential as it allows you to take swift action to protect your site and other users.
- A clear statement of the Intellectual Property you own and the rights you reserve in it, informing your users that they cannot use your property without your permission. Provide a way to report copyright infringement if your website or app allows users to share user-generated content.
7. SaaS Reseller Agreement / SaaS Distributor Agreement
Many SaaS vendors choose to use a local partner to resell or distribute their SaaS solution to customers outside of the countries in which they are based.
In these circumstances you would partner with a SaaS reseller or SaaS distributor, and would require a SaaS Reseller Agreement.
The SaaS reseller purchases the software in order to resell it to its own local customers in its local territory using its own terms and conditions.
The SaaS company itself does not enter into a legal relationship directly with the SaaS reseller’s customers. The end customer enters into a SaaS agreement with the reseller directly.
But the SaaS Reseller Agreement governs the nature of the relationship and the rights and obligations between you and the reseller.
Your SaaS Reseller Agreement should include
- In cases where the vendor and reseller are located in different countries, you must clearly set out the jurisdiction in which the laws governing the agreement will be based.
- A clear statement of who retains ownership in the IP and the rights and licenses in place to facilitate performance of the contract.
- A schedule for software maintenance and updates. Typically, as the SaaS provider you would remain responsible for updating and maintaining the software throughout the contract’s lifetime.
8. SaaS Channel Partner Agreement
A SaaS Channel Partner promotes your SaaS to new audiences in exchange for a reward for each new customer.
The reward can be anything from cash rewards and sales commissions, to tangible incentives.
Together you can share common customer bases, boost your brand’s reach, and create a customer exchange channel that’s mutually beneficial.
Some major SaaS companies like HubSpot, SEMrush, Zendesk, and Databox launched successful SaaS Channel Partner Programs in the early stages, in order to help scale their business, boost revenue and accelerate growth.
A SaaS Channel Partner Agreement governs the relationship between you and your SaaS Channel Partner.
Your SaaS Channel Partner Agreement should include
- The rights and obligations of each of the parties, including clear terms and guidelines for the marketing and advertising activities to be undertaken.
- A confidentiality clause to protect both companies from leaked trade or proprietary secrets, together with a statement of who will retain ownership of the Intellectual Property in your product, website and marketing materials.
- Payment terms including how, when and how much will be paid for each activity, together with the duration of the agreement and circumstances triggering termination.
9. SaaS Referral Agreement
A SaaS referral agreement is an agreement whereby a company refers new leads to your SaaS company, and in return receives a kickback for a percentage of the value of the deal.
As the SaaS vendor, you will determine the amount of commission and referral fees that will accrue to the referrer over time, based on the end-user’s subscription to your product.
This type of agreement doesn’t need to be overly long or complex.
The sole purpose of a SaaS Referral Agreement is for your referral partner to understand the conditions for a ‘qualified referral’ and the terms in which they receive their due commission.
Your SaaS Referral Agreement should include
- The type of referrals you are willing to pay for and the criteria for a ‘qualified referral,’ including timeframes and agreed formats.
- How payments will be handled, including commission structure, payment intervals, returns and credits.
- An acknowledgment that the agreement is a Non-Exclusive SaaS Referral Agreement whereby each party has the right to recommend similar products and services and to work with other parties.
So there you have it!
Now you’re totally clued up on a whopping 9 different types of SaaS agreements!
But wait. I know what you’re thinking:
“Where do I even start drafting, reviewing and negotiating all of these different contracts I need for my SaaS company!?”
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