When Paul Robichaux, CEO of MyDerm Portal, discovered a 30% price hike in his company's meeting software subscription, he was shocked. The vendor claimed they had notified him—but the notice was buried in a weekly update email that he had missed. Despite Paul's attempts to negotiate, the vendor wouldn't budge on the price, forcing him to cancel the service.

This isn't just Paul's story—it's a common scenario illustrating the importance of effective contract management for SaaS businesses. You risk missing renewal updates and damaging customer relationships without a proper system.

This guide covers the nuts and bolts of an effective SaaS contract management process. By the end, you can build processes for clear communication, systematic contract reviews, and strategic negotiations.

What are SaaS contracts?

A SaaS contract is a legally binding document outlining the terms, conditions, rights, and obligations between a vendor and a customer throughout their business engagement.

These contracts outline software delivery methods and usage, including the service's payment, duration, user(s), and so on.

What is SaaS contract management?

SaaS contract management involves managing various stages, including contract drafting, reviewing, negotiation, signing, and execution.

A good contract management process strengthens customer relationships, reduces contract turnaround time, and protects your business from legal issues.

SaaS contracts vs. other contracts: What's the difference?

There are two ways SaaS contracts differ from other contracts.

1. The tangibility of the product offered: Unlike businesses selling physical products, SaaS companies sell software. The contract gives customers the right to access and use that software per the specified terms and conditions.
2. Length of the purchases: Due to a subscription-based pricing model, SaaS agreements deal with long-term and ongoing transactions rather than one-off purchases.

“One of the primary distinctions lies in the nature of the services being provided, which are often subscription-based, cloud-hosted, and delivered continuously over time. This means that the contracts must account for not only the traditional terms around payment and termination but also ongoing responsibilities, such as uptime guarantees, service levels, and data security obligations.”

~ Rock Rocheleau, Founder & Attorney, Right Lawyers

Various SaaS contracts serve a specific purpose at every stage of the customer's lifecycle. Let's discuss them.

Types of SaaS contracts

• Master Service Level Agreements (MSAs) act as a rulebook governing the involved parties' current and future responsibilities. The agreement includes contract terms such as confidentiality, insurance coverage, dispute resolution, and indemnification.
• Terms and conditions agreements are omnipresent on SaaS vendor sites and outline the primary rules and conditions the buyer must agree to before buying the software.
• Service Level Agreements (SLAs) specify the services the user will receive from the service provider, including the scope, duration, and KPIs like response duration and uptime.
• NDAs, or Non-disclosure Agreements add a security layer to protect business and customers’ sensitive information during the subscription period.
• Data Processing Agreements (DPAs) bind the data controller (you, the SaaS vendor) and data processor (like a third-party service provider). It outlines how a business and external parties should handle customers' data in compliance with laws like GDPR and CCPA.
• The subscription agreement outlines the terms and conditions of the plan the user buys.

Key terms to be included in SaaS contracts

Contract terms may vary based on your software, contract type, pricing model, and brand policies. However, every agreement often consists of the following conditions:

• Subscription terms: Is it monthly or annual? What are the associated prices, payment methods, discounts, and early termination penalties?
• Service Level Agreement (SLA): What performance guarantees does the vendor provide? This includes uptime commitments, support response time, system maintenance and upgrade schedules.
• Scope of service: Who can access the software? What functionalities are available to the end user? What limitations and exclusions should the end user expect for their pricing tier?
• Data security and privacy: How will the customer’s data be handled, processed, stored, and secured per regulations?
• Termination and renewal: What terms and conditions must be met? Will renewals be automatic? What are the notice periods? Are there refunds for terminations?

Let’s dissect a real-life SaaS contract example and its contents.

SaaS contract example: Terms and conditions agreement

Here's an example of our terms of use contract, available in our site's sitemap and contains the following details:

1. Whenever we change the contract, we create a new version and edit the "last updated" date. This helps us convey the most updated information to potential customers.
2. Right below the first paragraph, we clarify when the contract takes effect: when a user visits our website or engages with our platform.
3. The contract outlines guidelines for what information customers should share for optimal platform use.
4. The contract has a disclaimer about possible future modifications. We do this to alert readers that they can stop using the platform if they don't conform to any modification.

5 common challenges with SaaS contract management

Managing SaaS contracts presents unique challenges due to customizable solutions, industry regulations, and data security and privacy concerns. Here are five of the most common challenges.

#1. Complex pricing structures

As SaaS businesses are pricing model-driven, each contract's terms vary based on the pricing type. For example, flat fee pricing often has straightforward contract terms compared to per-user pricing.

The issue worsens with custom pricing, which most SaaS companies offer.

High contract customization is time-intensive and increases buyers’ bargaining power. They may seek discounts, request custom features, or negotiate usage thresholds. Such bargaining lengthens contract negotiation and approval due to multiple rounds of edits from the legal teams.

#2. Data security and privacy concerns

In 2022, a hacker breached Uber’s internal system by compromising a third-party contractor. Despite having an MFA, the attacker pushed the contractor to accept the MFA prompt, giving the hacker access to the data.

Despite the attacker’s interest in bragging rights over stealing personal information, such breaches raise customer data security and privacy concerns.

As you rely on external providers for payment processing and data management, storage, and hosting, data concerns are ever present.

Another challenge is keeping contracts compliant with regulations, especially with global customers or vendors in specific locations. For example, CCPA applies to California businesses, and SHIELD applies to those dealing with New Yorkers’ private data.

#3. Difficulties with contract renewals

Contract renewal is crucial to SaaS businesses for sustained revenue. However, you must track contracts and monitor renewal dates closely for smooth processes. This is easier for smaller companies with fewer contracts. However, tracking renewals for individual agreements can be tricky and time-consuming for fast-growing organizations with large contract volumes, especially with manual processes.

The challenge increases with potential renegotiations during contract renewals and the need to maintain compliance with changing regulations for each contract at renewal.

#4. Changing industry regulations

Industry regulations control contract management throughout the customer lifecycle. However, these regulations change occasionally, and organizations must keep up to avoid non-compliance.

The constantly changing regulations complicate contract management processes for SaaS organizations. They must change the structure and content of existing contracts, renegotiate SLAs, modify contract templates, and reassess data handling processes.

#5. Tracking SLAs

SaaS contracts typically include SLAs that define guarantees like service uptime, support response times, performance levels, and maintenance schedules. Ensuring compliance with these SLAs and managing penalties or credits requires consistent tracking and monitoring.

This is usually less challenging on a small scale. However, with large contract volumes, tracking service performances, managing disruptions and escalations, and creating service-level reports can be more difficult, especially with manual processes.

Also read: Checklist for a Good Master Service Agreement [+Sample MSA Template]

Difficulties will exist, but you can find a workaround by implementing best practices. We’ve picked 9 practices to help you become more proactive in your contract workflow management.

9 best practices for SaaS contract management

SaaS contract management best practices simplify operations, minimize data security risks, and maximize value for you and your users. Here are our top 9 picks.

#1. Review the contractual obligations during negotiation

Ensure all parties understand the SaaS contract details before committing. This is partly because SaaS contracts (especially B2B) often involve vendor lock-in, making contract exit difficult once executed.

Here are a few tips:

• Clearly define the contract scope, pricing, and conditions, specifying deliverables, milestones, and required customizations.
• Align contract terms with your business goals and service capabilities.

#2. Keep your SaaS contracts aligned with regulations

Business laws and industry regulations constantly evolve, impacting how SaaS businesses handle data and deliver customer services.

To maintain compliance, run regular checks, weigh your contracts against current regulations, and ensure changes are accurately reflected.

Source: LinkedIn

#3. Define realistic SLAs

Along with strong SLA guarantees, set realistic customer expectations for uptime, response times, and support availability. Monitor and track performance against these SLAs and resolve issues during the agreement phase. Additionally, establish processes for handling SLA breaches, such as compensation or service credits.

#4. Standardize your contracts to maintain consistency

“The absence of contract templates leads to non-standardization and makes contracts prone to errors. The legal team, therefore, is required to delve deep into contracts and proofread all clauses with a fine-tooth comb to identify and rectify the simplest of human errors.” 

~ Igor Poroger, Director of Legal, EMEA, Vectra AI, 
How CLMs Empower Legal Teams in B2B SaaS Companies

Identify the pivotal contracts for your businesses that can be standardized.

• Which contracts does your team spend the most time on?
• Which contracts involve the most repetitive manual work?
• Which contracts require the least negotiation?

Once you clarify the contracts, analyze them to identify pain points for your team and users. For example, some contracts might face more customer pushback. Reflect on that and nitpick the reasons to design user-centric contract templates.

SpotDraft's contract template builder helps you create contract templates quickly. Each template includes essential legal guardrails, SaaS-specific clauses, and conditional logic to scale the contract creation process and maintain legal compliance. 

Also read: How to Standardize a Contract in 7 Easy Steps: Contract Standardization Guide

#5. Send auto-renewal reminders

In SaaS contracts, auto-renewal clauses are seen as an opportunity to earn money from customers. These clauses can cost you revenue and customer trust if not clearly outlined.

Ensure your contracts communicate auto-renewal terms, and proactively send renewal reminders 30, 60, and 90 days before the renewal date. Such a cadence gives buyers and vendors ample time to renew or cancel their agreements.

#6. Communicate termination terms upfront

“Like the start date of the contract, being crystal clear on when the contract ends can save you a lot of heartache. Spend the necessary amount of time thinking about all of the reasons you’d want the agreement to terminate and make sure those are included.”

~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC,
Ten Things: I know it’s Boilerplate

Offer self-service termination options in your customer portal to reduce manual intervention and build customer trust. These portals give customers the flexibility to initiate the termination process, and you can track it in your CLM.

With SpotDraft, you can build portals and establish termination workflows. For example, you can include notifications and triggers for processes like account deactivation, data archiving and deletion, and compliance checks.

#7. Conduct vendor due diligence

Evaluate third-party vendors carefully to ensure good value for your investment.

Consider these factors when evaluating potential vendors:

• Read customer reviews on third-party platforms and case studies.
• Have 1:1 conversations with the vendors to clarify any queries.
• Maintain transparent communication to address emerging issues promptly.
• Set up periodic performance reviews and hold vendors accountable to SLAs.
• Run a background check on your vendors to assess their reputation, policies, and capabilities.

#8. Keep stakeholders informed at every stage

Collaboration becomes paramount when you’re dealing with multiple stakeholders (client, legal, procurement, and sometimes external vendors or consultants) throughout the contract lifecycle.

• Outline responsibilities for everyone involved in the process and set up regular check-in meetings (using a CLM or meeting apps) to collect feedback on any challenges or loopholes.
• Centralize communication with a CLM platform like SpotDraft to involve stakeholders in contract reviews, move contracts between stages, and share contract reports occasionally.
• Set up collaboration KPIs and success criteria to track the team’s performance and identify improvement areas.

“You need to tell stakeholders what your team is up to. Otherwise, leverage tools such as CLMs to showcase how your team has contributed to closing deals effectively.”

~ Juliette Thirsk, Head of Legal, Peach Payments

Also read: How to Drive Effective Collaboration Between Legal And Sales

#9. Monitor and evaluate your contract management processes

Your processes are bound to evolve due to an increased customer base, feature updates, pricing changes, or external changes. Set up periodic contract evaluation checks to keep your processes adaptable to the dynamic nature of SaaS business. 

These checks can be about,

• Ensuring contracts are updated with the terms reflecting recent business changes 
• Tracking metrics such as volume of contracts signed, average turnaround time, and close rate.
• Understanding average contract costs for different customer segments.

Consistently monitoring your contract workflows can reflect optimization opportunities and help you prepare contract reports with data-backed figures for the stakeholders.

“Yes, sales deals must close promptly, and legal teams prioritize the same. However, they must also ensure that contracts are future-proofed, with zero margins for error.”

~ Igor Poroger, Director of Legal, EMEA, Vectra AI
How CLMs Empower Legal Teams in B2B SaaS Companies

To implement these best practices, the right contract management platform is essential. These platforms automate contract workflows, centralize the contract repository, boost collaboration, and maintain contract compliance.

Top 5 SaaS contract management software

Here is the best software for planning, managing, and reviewing SaaS agreements throughout the contract lifecycle. Let’s dive in!

1. SpotDraft

SpotDraft is one of the best contract management platforms to create a central source of truth to streamline your SaaS contract management processes, from creation to collaboration.

Here's how our tool helps you manage SaaS agreements:

1. AI-based contract review: SpotDraft’s AI-editing tool, VerifAI, reviews contracts and offers accurate suggestions, comments, and redlines. In SaaS, where many users sign up, VerifAI can make compliance easier with its quick editing and suggestion reviews.
2. Contract analytics: Our tool visualizes your contract creation process, including average turnaround time, approval bottlenecks, and deal closing time. This data helps expedite negotiation and closing.
3. Contract standardization: You can convert your SaaS contracts into a template by outlining key terms, formats, and guidelines, ensuring all contracts are standardized. This reduces legal risks and lets teams work independently without waiting for legal approvals.

Try SpotDraft yourself.  

2. Juro

Juro is an intuitive contract management software that stands out among tools due to its modern and sleek user interface. It helps you centralize your contract management and collaboration.

3. Ironclad

Ironclad is a leading contract lifecycle management software for large to enterprise-level SaaS companies. It offers advanced reporting, automated workflow building, and signature capabilities for a scalable contract management system.

4. Docusign

DocuSign is a widely used e-signature tool that streamlines contract workflows. It unites the legal, accounts, and sales teams, tracks client changes, gets approvals, and collects e-signs. Each step, from drafting to signature, is tracked, ensuring full transparency in the contract lifecycle.

5. PandaDoc

PandaDoc supports every stage of contract lifecycle management with features for drafting, collaboration, and performance tracking. A standout feature is its integrated billing system, which lets you send invoices and collect payment from customers once the contract is approved and signed.

Working above the benchmark

SaaS contracts are complex due to long buying cycles, multiple stakeholders, and changing price models. However, implementing simple, proven strategies can improve your SaaS contract management processes.

Modern CLM has made contract management a breeze. Platforms like SpotDraft add value to your business by automating contract tracking, increasing visibility in contract operations, and governing contract compliance.

But that's just the tip of the iceberg!

Request a personalized demo to explore SpotDraft’s features for managing your SaaS contracts!

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