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Are you considering adopting a new SaaS? You're already familiar with the revolutionary impact SaaS has on employee productivity. In order to fully enjoy the benefits of SaaS, proper contracts are essential. SaaS contracts contain key agreements between service providers and users. Subscription terms, pricing structures, service level agreements (SLAs), data security provisions, and other relevant provisions are comprehensively described.

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As cloud-based data access and sharing becomes easier, securing the right contracts is paramount in order to mitigate legal risks even when using SaaS. By understanding the basic terms of a SaaS contract, you can skillfully explore contracts that you don't know where to start, and avoid future pitfalls associated with unfavorable terms or false contracts.

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In this article, we'll look at the basic terms of a SaaS contract and introduce what the contract team or purchasing team should consider when signing a contract based on actual statistics related to SaaS contracts.

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Key clauses to review in every SaaS contract

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License scope

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The SaaS agreement includes the following as a clause on the scope of the license:

• Indicate how you are allowed to access and use the service
• User restrictions or other defined rules relating to access

SaaS vendors may offer SaaS exclusively, but they often provide services to multiple customers through a multi-tenant model of software service deployment. This allows multiple groups of customers to share a single instance of a single software and supporting infrastructure, but the data is separated so that software can be delivered at a much lower price than traditional software.

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Businesses often waste licenses while paying a fixed usage fee because they are unable to properly manage SaaS usage. When signing a SaaS contract, it's a good idea to carefully review the scope of the license and make sure there are flexible provisions that can reduce or increase the license as needed during the contract period.

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Limitation of liability

Defining the scope of responsibility in a SaaS contract is an important part of managing the relationship between service providers and users. To protect both parties from unforeseen liability, certain exclusions of damages, financial limits on liability, indemnity, and force majeure provisions are included.

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Data ownership and security

Defining data ownership in a SaaS contract is very important because using SaaS generates a significant amount of data. If a software provider hosts customer data, ownership boundaries can be blurred, so it's essential to specify who owns the data.

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To ensure clarity about data ownership and security, it's important to review data storage practices and associated access restrictions. The SaaS agreement must also include a privacy policy explaining how the service provider utilizes user data. This policy describes the information collected, internal or third party sharing, data encryption measures, backup protocols, and the service provider's responsibilities in the event of a data or security breach.

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Customer service and support

The customer service and support provisions include the expected quality of service and support coverage and response times. You can find out specifically what support you can get from the vendor when using SaaS.

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Subscription plans, models, and pricing

It describes the features offered by each subscription plan and how the SaaS provider provides the service. It provides explicit details about costs and explains how and when to claim them.

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SaaS contracts generally adopt a subscription model with monthly, quarterly, or yearly payment frequencies. In this model, customers pay regularly to maintain access to services. Typical SaaS pricing models include:

• Flat-rate pricing: A single product with a fixed set of features is offered at a specific price.
• Usage-based pricing: It operates on a pay-as-you-go structure based on actual usage.
• Tiered pricing: We offer multiple packages with different feature sets at different prices.
• Per-user pricing: There is a fixed monthly fee per user, and the overall cost increases as more users are added.
• Per-active user pricing: You only charge for active users, regardless of the total number of registered users.

You can compare average rates commonly used in the market and find out which pricing plan is appropriate for your organization's needs and usage patterns.

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Term, renewal, termination

In the case of SaaS, the contract period, renewal, and termination clauses are usually 1 year, and in the case of large companies, it may be extended up to 3 to 5 years. In general, SaaS contracts are often automatically extended unless terminated before a specified date. To decline automatic renewals, you must notify us within the specified time period. The termination clause of the SaaS contract allows the contract to be terminated for any reason, and there is a notice period of 10 to 90 days.

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5 statistics related to SaaS contracts

Based on contract data from more than 1,000 companies, Common Paper, an American contract platform developer, 'Contract Benchmark Report'has been published. Let's take a look at what to consider when signing a SaaS contract based on the SaaS contract statistics provided in this report.

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74% of contracts are signed by management

Many people, from practitioners to management, are involved in purchasing decisions, but usually only one person signs the contract. According to a survey by Common Paper, 74% of contract signers are executives, 18% are directors, and 8% are managers.

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Common missions of corporate executives in 2024 include sustainable management, digital transformation, innovation and growth, and building a resilient organization. In order for an organization to sign a SaaS contract more smoothly and quickly, I recommend explaining how the SaaS can effectively achieve the organization's goals and how it helps the company's mission.

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AI clauses that have begun to appear in contracts

Over the past year, numerous AI products have appeared on the market. PwC Pulse Survey (PwC Pulse Survey)According to the survey, more than half of responding CIOs said they plan to invest in new technologies such as cloud or AI within the next 12 to 18 months, and 46% said they would invest in GenAI in particular.

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Barry Shirky, CIO of NTT Data, a digital business and IT consulting services company, also stated, “Organizations can experience significant challenges if they fall behind in the AI adoption race.”

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As the need to securely adopt AI tools to meet organizational goals and requirements is growing, provisions relating to the use of customer data in AI and ML models are becoming commonplace. In the first quarter of 2023, the proportion of contracts referring to AI was less than 5%, but increased to 25% in the fourth quarter of 2023.

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For SaaS using AI, the contract must clearly define responsibilities and actions for data protection and security, and ensure that AI algorithms are described and test results and responsibilities specified.

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90% of contracts are automatically renewed

According to a Common Paper survey, 70% of SaaS contracts are annual contracts, and 19% are monthly contracts. Additionally, it is said that 90% of SaaS contracts are automatically renewed, and 29% automatically increase fees when renewing.

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When signing a SaaS contract, you should check how the subscription period for that SaaS works, whether the contract renewal is automatic, and how the notice period for termination of the contract is set.

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The most common payment period is “30 days from the date the customer receives the invoice”

“30 days from the date the customer receives the invoice” is the most common payment period, accounting for 62% of signed contracts. 48% of contracts use monthly invoices and 46% send annual invoices. Quarterly invoices were relatively rare, accounting for only 5% of all SaaS contracts.

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SaaS is a subscription business where periodic payments occur, so it is important to continuously manage and track contract details. In order to prevent tragedies such as monthly payments that are different from actual use, it is important to check and manage actual users for each SaaS in real time.

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39% of SaaS contracts include an SLA

A service level agreement (SLA) defines the level of service expected from a supplier, and specifies metrics to measure service and penalties for failure to meet agreed service levels.

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Since an SLA allows communication based on agreed terms between service providers and users, it is possible to further increase the clarity of the contract details.

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How to effectively manage SaaS contracts

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Manage all your SaaS contracts in one place

As the number of SaaS used within organizations increases, managing SaaS-specific contracts occurs repeatedly, and the amount is increasing. Being able to archive and access SaaS-specific contracts in one place without having to find them all makes the contract management process simpler and more efficient. Managing your entire SaaS contract in one place also makes it easier to make data-driven decisions.

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POPs provides a centralized console to view SaaS-specific contract details at a glance. For each contract, you can manage the supplier, contract period, applicable SaaS usage status, pricing, and even the person responsible for the contract in one place.

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View the licenses being used by each SaaS user

Professional provider of digital employee experience management solutions NexThink (NexThink) researchAccording to the report, it is estimated that unused and wasted license costs within the enterprise will reach 45 million dollars per month. In the case of SaaS, employees or teams often buy and use licenses directly, which often results in duplicate purchases and double charges.

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POPs can check users for each license in real time using the API, and you can also view the licenses being used by each user. You can easily find and clean up SaaS that is redundant or hasn't been used for a period of time to reduce costs.

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Setting license end date notifications for each SaaS

Once a SaaS contract is signed, they often don't care about that contract. As can be seen from the statistics above, 90% of SaaS contracts are automatically renewed, so if the SaaS license used within the organization is not well managed, unnecessary expenses can be paid every month.

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POPs can set license renewal and termination notifications. You can set license end date notifications for each SaaS to prepare subscription renewals and estimated costs, or consider terminating or replacing subscriptions.

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Want to learn more about how to effectively manage SaaS contracts? If you sign up for a POPs demo, you can learn more about how POPs can efficiently manage contract tasks that were handled separately for each SaaS in one place. 👉 Request a POPs demo

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