The use of SaaS by businesses has hit a 1300% increase between 2015 and 2024, according to BetterCloud. Businesses are going all-in on cloud software, and SaaS companies are scaling at breakneck speed to keep up.

But with this explosive growth comes extra layers of complexity for both vendors and end users, with heightened risks of vendor lock-in, platform misuse, revenue leakage, and legal disputes.

A SaaS agreement is designed to minimize these risks. It lays the ground rules for every vendor-end user relationship, making sure that both sides proceed with clear expectations.

In this guide, we’ll explain everything you need to know about a SaaS agreement, its components, challenges, and how to manage it effectively.

TLDR? Here’s a breakdown of what this guide covers:

• A SaaS agreement is a contract that establishes a legal relationship between a SaaS vendor and an end user. It specifies the rights and obligations of each party regarding the provision and use of the cloud-based software.
• Common elements in SaaS contracts include definitions, service descriptions, usage rights, pricing, data ownership and security, service level agreements (SLAs), liability limitations, termination clauses, dispute resolution processes, and intellectual property protection.
• Liability protection, abuse prevention, and revenue prediction are some ways SaaS companies benefit from SaaS contracts.
• Customers benefit through vendor accountability, predictable costs, and protection from unexpected changes.
• When businesses and vendors manage SaaS contracts inefficiently, they struggle with version control issues, scaling difficulties, missed renewal dates, and data fragmentation.
• To fix this, they must leverage automation, centralize their contracts, use a Contract Lifecycle Management (CLM) tool like SpotDraft, and perform regular performance audits.

What is a SaaS agreement?

Source: Alain Elia via LinkedIn

A SaaS agreement is a contract between a business and a SaaS provider that allows the business to use the provider’s cloud-based software on a subscription basis.

By cloud-based software, we mean digital solutions that run on the Internet instead of your local computer. Think Slack, Gmail, HubSpot, SpotDraft, etc.

Let's say your company is having a hard time tracking leads and managing customer relationships, so you get into talks with a CRM provider. Before using this CRM, you must agree to the CRM company's SaaS agreement.

In the contract, you’re essentially agreeing to pay a recurring fee for the right to use the CRM. The amount you pay will determine your storage limits, feature access, number of users, etc.

The SaaS provider, on the other hand, will outline a series of “promises” within the contract, alongside things both parties can or cannot do.

Also read: SaaS Contract Management 101

SaaS agreement template

To help you get off the ground faster, we’ve created a standard SaaS agreement template for you. Note that this is just a template, and you should always modify templates to fit your business and industry requirements.

Key elements of a SaaS contract?

“B2B SaaS companies are commerce-driven. Commercial deals take precedence over any other function, and consequently, the number of contracts they roll out is always on the rise.”

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

What you’ll find in a SaaS contract will ultimately depend on the nature of the software, the industry, and the services it covers.

However, there are specific contractual provisions that are common across SaaS agreements. Some of them include:

#1 Definitions

This is where the SaaS vendor defines all the technical terms used throughout the contract. For example, "User," "Downtime," "Service," etc.

The goal of this section is to make sure everyone is on the same page (no pun intended).

#2 Service description

Here, you'll find everything the software provider is offering. It often covers the software features, supported integrations, technical support, add-ons, and every other perk attached to your subscription tier.

#3 Access rights and usage limits

This is where the contract describes what the business can or cannot do with the software. It covers areas like accessible features, maximum users, data usage, and third-party integrations.

In some cases, it may also clarify if the business can use the software for commercial purposes, modify it, or share it externally.

#4 Pricing structure and payment terms

The agreement talks about the cost of the current subscription tier, the billing cycle, refund policies, grace periods, and autorenewal conditions.

Some agreements also touch on usage-based pricing, discounts for long-term commitments, and terms for pricing changes.

#5 Data ownership

This part clarifies who owns the data generated or used within the platform. In most contracts, the customer retains ownership of the data.

This section also explains how customer data can be accessed, exported, or deleted, particularly upon contract termination. It may also talk about data retention policies and the provider's responsibilities in handling customer information.

#6 Data security

“One thing I have learned is that data privacy is actually pretty straightforward, common sense stuff: Tell people what you are doing with their personal data, and then do only what you told them you would do.  If you and your company do this, you will likely solve 90% of any serious data privacy issues.”

~ Sterling Miller, CEO of Hilgers Graben PLLC
‍‍Ten Things: Data Privacy – The Essentials

This part explains what measures the SaaS provider is taking to keep the customer's data safe. It discusses compliance with data protection regulations like GDPR, HIPAA, and CCPA.

The data security section also outlines the provider’s incident response strategies in case of a data breach and its obligations regarding customer notifications.

#7 Service-Level Agreement (SLA)

What are the software provider’s commitments regarding uptime guarantees, response time for technical support, page load times, error rates, etc.? This section provides all the answers.

The SLA section may also outline compensation mechanisms, like service credits, in case the provider fails to deliver on the agreed minimum performance standards.

#8 Limitation of liability

When incidents like system malfunctions, security breaches, or downtimes result in damages, what’s the extent of the provider’s responsibility? The contract clarifies that here.

It provides a cap for the provider’s financial liability and clarifies what damages are covered.

Also read: Limitation of Liability Clause: Everything You Need to Know

#9 Term, termination, and renewal

This section explains how the provider’s renewal process works, the duration of the SaaS contract, and the conditions for termination.

Most SaaS agreements renew automatically, so it’s often covered in this section. There’s also usually a requirement for upfront notice or termination fees in case you wish to terminate the contract at any time.

Source: Foster Sayers via LinkedIn

#10 Dispute resolution

This part covers the preferred dispute resolution approach. It can be arbitration, negotiation, or even litigation. In many cases, the contract will specify the jurisdiction and governing law to avoid uncertainties in cross-border agreements.

Also read: Finding Common Ground: How to Resolve Contract Disputes

#11 Confidentiality and Intellectual Property (IP)

This is where the contract talks about what's considered confidential business information and everyone's obligation to protect it. It also clarifies who owns the software, trademarks, and any related intellectual property.

The importance of SaaS agreements

Source: Nidhi Jain via LinkedIn

Whether you're a SaaS vendor or a customer, a SaaS contract is a tool you should never take for granted. Disregard it, and you might be setting yourself up for lengthy disputes, unexpected liabilities, and financial losses.

Here are a few reasons why having a solid SaaS contract is mission-critical.

Benefits for the SaaS provider

• Protects the provider from excessive liability: A well-written SaaS agreement limits your legal exposure by addressing unforeseen events, damages, and warranties. So, when the unexpected happens, you won’t be caught off guard with costly disputes or liability claims.
• Helps prevent product abuse by customers: A strong SaaS agreement sufficiently clarifies what a customer can and can’t do with the software, along with penalties for violations. This prevents abusive behavior like unauthorized sharing, reverse engineering, or using the software in a way that infringes on your company's Intellectual Property rights.
• Establishes predictable revenue: The payment terms section of a SaaS contract provides a clear picture of the subscription duration, payment structure, and renewal process. Knowing these helps you predict revenue and make better financial decisions.

Benefits for customers

• Provides accountability via SLAs: A SaaS contract includes SLAs that spell out performance expectations, minimum uptime guarantees, security commitments, and support response times. This gives the customer the right to hold the SaaS provider accountable for delivering as agreed.
• Protects you from unexpected changes: Once a SaaS contract has hit the execution phase, the customer can rest assured that the vendor will not change the terms of the contract or deviate from the SLA without their explicit consent.
• Predictable costs: A good SaaS agreement spells out pricing, renewal fees, and additional costs (like overages or premium features). That way, customers know exactly what to expect for every billing cycle.

Difference between a SaaS contract and a software licensing agreement

Both SaaS contracts and software licensing agreements deal with software usage. But they’re used in completely different scenarios. Here’s a breakdown of their differences:

Source: Gary Guttenberg via LinkedIn

The challenges of SaaS contract management

Managing SaaS contracts can be a hassle for both vendors and customers. From version control to renewal management, there are so many moving parts in the ecosystem, and keeping everything under control isn’t exactly a walk in the park.

#1 Version control

Contracts go through changes from time to time, driven by economic shifts, new compliance requirements, and so on. Every time a SaaS contract goes through modifications, a new version is generated.

Whether you're a vendor or customer, the constant modifications can make you lose sight of the current version, who agreed to what, and whether you're even working off the correct document.

#2 Managing multiple SaaS contracts

According to BetterCloud, companies use an average of 112 SaaS applications. This means managing contracts with dozens (sometimes hundreds) of SaaS companies. Each agreement comes with its terms, SLAs, and compliance requirements. Staying on top of all that can be a serious headache.

SaaS vendors aren’t spared as well. As they scale their user bases, the number of contracts they have to manage increases exponentially. This makes contact management more complex. And with so many routine workflows, it can get overwhelming.

#3 Managing renewals

As a business, imagine how difficult it is to track renewals for all your contracts. You'll need to regularly review existing SaaS contracts to know which ones must be canceled and which can be renegotiated. While saving your company from vendor lock-in and unwanted expenses is important, carrying out this task is not easy.

Renewal management is also a critical part of the SaaS vendor’s revenue cycle. They need to constantly track renewals across all existing contracts to improve retention. Handling this task for a handful of contracts is fairly easy. But it can get out of control for fast-growing companies with rapidly scaling customer bases.

#4 Fragmentation

In some companies, different departments might procure SaaS applications independently. When this happens, it often results in SaaS contracts floating in different locations: emails, shared drives, and individual computers.

Managing contracts in such a fragmented ecosystem is tough. There's a lack of visibility, compliance risks, poor standardization, and increased potential for wasted budget.

How to manage SaaS contracts effectively

”You can either be part of the cleanup crew or do stuff to avoid that cleanup situation altogether."

~Gitanjali Pinto Faleiro, General Counsel, Company Secretary & CCO at Greenhill & Co.
‍Navigating the C-Suite as a GC‍‍

The challenges we’ve identified above are common among businesses relying on outdated, manual processes for contract management.

But the key to crushing it with SaaS contract management isn't working harder. It's being smarter and more efficient with your approach. Here are the best practices to follow:

#1 Automate your routine processes

According to McKinsey Quarterly, there’s a potential for automation in 45% of all business operations. 

Contract management contains a lot of routine processes, from renewal management and standard approvals to legal reviews and storage. Automating these routine processes will accelerate contract cycle times, reduce administrative overhead, free up teams to focus on delivering more value, and ultimately position your business to generate more revenue.

#2 Centralize your contracts

Studies suggest that at least 32% of every company’s workforce is involved in contract management. When sales, HR, procurement, and other contract-facing teams generate contracts independently, there’s always a potential for silos and data fragmentation.

You must avoid these silos by centralizing everything. Funnel your contracts into one secure, searchable repository. This will make things more organized, help with visibility, and empower you to make data-driven decisions.

#3 Use templates for high-volume contracts

“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

Templates are a lifesaver when onboarding customers at scale. Building a contract from scratch for every new intake is a slow and painful way to kill your business. But with standardized templates, you have everything you need on standby and ready to go at all times.

Templates allow you to automate much of the drafting work while providing flexibility for adjustments specific to each customer. They can include pre-approved clauses, terms, and conditions so you can launch contracts at scale with minimal risks of non-compliance and expensive errors.

#4 Use a Contract Lifecycle Management (CLM) platform

A CLM allows you to manage every phase of your organization’s contracting lifecycle in one unified platform.

This is where SpotDraft shines. It empowers organizations like yours to get the best out of contract management.

SpotDraft has a robust, secure, and searchable central repository where it automatically stores and categorizes every contract that flows through your business operations.

It also comes with an AI-powered template builder, which allows you to quickly build templates for your high-volume contracts. Other benefits of using a CLM like SpotDraft include:

• Automation: You can automate repetitive processes like approvals, renewal management, legal review, and contract drafting.
• Better collaboration: Sales, legal, and other business teams get a shared space for collaborative drafting, editing, and negotiation. This helps maximize opportunities and ensure contracts perfectly align with the company’s goals.
• Integration with existing systems: Contract management systems like SpotDraft integrate with your CRMs, cloud storage, ticketing systems, and other tools your business already uses. This reduces context-switching and makes contracting more efficient.

#5 Set a schedule for performance audits

If you want a system that consistently delivers, you must regularly audit and optimize your setup.

Your performance audit should cover areas like cost-effectiveness, uptime and service reliability, compliance, renewal trends, customer feedback, etc.

This shows you where your SaaS contracts are delivering value and where they’re falling short.

Let SpotDraft do the heavy lifting for your SaaS agreements

“Leveraging a CLM has been key because it has reduced a lot of friction from handoffs between legal and business. Rather than going back and forth over email, Slack, Word, Zoom, DocuSign, and a whole tech stack, the CLM acts as a single source of truth. And that's why what you do at SpotDraft is so important because that's what in-house GCs and legal heads need the most: A way to streamline their contracting motion.”

~Jonathan Franz, Head of Legal, Crunchbase
The Counsel Corner: Navigating Economic Turbulence and Thriving in Chaos

Managing SaaS agreements should never be a headache. With SpotDraft, you get an AI-powered CLM that does the dirty, mind-boggling work for you. That way, you focus more on driving growth and less on paperwork.

Want to see it in action? Click here to book a free demo session.

People also ask

What is the difference between an SLA and a SaaS agreement?

An SLA focuses on the quality of service a SaaS vendor is expected to deliver, like uptime guarantees, security, support, etc. SaaS agreements have a broader scope, containing various terms (including SLAs) required to establish a legally binding agreement between a SaaS vendor and an end-user.

What is a SaaS arrangement?

A SaaS arrangement is a deal between a SaaS vendor and an end user, where the vendor provides the end user access to cloud-based software on a subscription basis.

What are some common examples of SaaS platforms?

Popular SaaS platforms include Google Workspace, Zoom,  SpotDraft, Slack, HubSpot, and Shopify. They're accessible via the Internet, and you, as the end user, are not responsible for managing the infrastructure.