How to Write a SaaS Agreement | Free Contract Template

According to Sastrify data, the average SaaS stack includes over 136 tools, and each tool comes with its own usage terms, contract period, commitments, KPIs, SLAs & more.

If you want to sign deals that help you achieve your business goals within budget, then you need SaaS contract agreements that cover your commercial relationships from top to bottom.

Let's dive into everything you need to know about contract agreements, from how they’re written to what’s inside and how you can manage them going forward.

What is a SaaS agreement?

A software-as-a-service agreement, or SaaS agreement, is a binding legal document — signed by both the buyer and the vendor — that outlines the terms and conditions for the delivery and usage of a product. SaaS is typically hosted in the cloud and accessible to users over the internet from any location.

Common terms and conditions include how users access and utilize the software, administrative services, payments, and cancellation. To see an example, download Sastrify's Master SaaS & Services Agreement Template.

How is a SaaS agreement structured?

SaaS agreements define the terms and conditions for the buyer and their access to the software of the vendor, as well as the obligations and responsibilities of the vendor to the buyer.

9 typical contract terms are:

The vendor’s platform information
The prospective buyer’s business license information
Start and end dates for the subscription service
The subscription tier or pricing package chosen
Automatic renewal clauses
Payment terms
Licensing agreement terms
Security policies and legal information
Contractual obligations and more.

SaaS contracts also usually include a variety of key clauses that define the T&C in further detail, ensuring both parties are aware of their obligations.

The 9 most important clauses in SaaS agreements

1. Access rights & scope of license

The scope of the license or access clause defines the ways in which users are permitted to use your product. These clauses are not universal; they can provide users with varying scopes and types of rights.

With modern SaaS companies, access clauses are more relevant than license clauses because most products are not sold on a license basis, unlike traditional downloadable software. Storing copies of software on a user’s device is what would require license agreements. So, you’re more likely to see the scope of access clauses.

2. Limitations of liability

A limitation of liability (LOL) clause is used by the SaaS services to protect themselves from legal action by an end user seeking certain damages. Since the buyer will sign the agreement after SaaS negotiations conclude, they will be contractually bound to this clause.

If, for example, the SaaS model doesn’t work properly and the buyer’s company experiences damages as a result, the limitation of liability will limit the buyer’s ability to recover any losses. (Check out our agreement checklist here.)

3. Subscription plan and terms

This clause should define what your subscription includes; pricing, payment terms, and how the vendor will deliver the agreed-upon services. As a buyer, you should be able to see precisely how much you will be charged, how often, and what method of payment will be used.

Most SaaS agreements use monthly, quarterly or yearly subscriptions. All of this can be discussed during the SaaS procurement process and as your team negotiates with the SaaS vendor.

Our SaaS Spend Management Guide can help you optimize current and future SaaS spending.

4. Data ownership and security standards

The use of a piece of software will generate a significant amount of sensitive data, on both the user and the provider side. A clause on data ownership and data security will define who owns the data collected by the software company.

Note that in most subscription models, SaaS providers are usually responsible for hosting customer data, it can be confusing to define who owns the data.

The clause should also include:

How information can be stored, disseminated, and accessed
A privacy policy on data protection and third-party access
Information on physical security, backups, encryption, and what happens if there’s a security breach

5. Customer service and support

A clause on customer service will outline how the SaaS service has agreed to provide support to the buyer in regard to the software. It should also give a window for response time, information on which team will be in contact with the customer, and any other applicable service guarantees.

6. Termination and renewal requirements

The clause covering termination, renewal dates, and length of a contract is very important in SaaS. Many SaaS contracts will auto-renew, meaning the agreement will automatically restart for another term and customers will be charged monthly or annually without the vendor having to repeat the sales process.

Auto-renewals can be a huge issue for buyers who miss the transition period. They then lose their ability to negotiate a new binding contract (when applicable) or make any changes to their subscription before the new agreement comes into effect.

So, reading renewal clauses carefully and adjusting as needed is strongly recommended.

7. SLAs (Service Level Agreements)

A Service Level Agreement is a legal contract defining in more detail what the SaaS vendor’s software will provide and what the SaaS buyer expects to receive from the vendor. The SLA can be a stand-alone document or can be a clause within the larger SaaS agreement.

For SaaS specifically, the SLA is used to set minimum performance standards, particularly around service availability (i.e. uptime). The smaller the uptime percentage, the higher the (negative) impact on the end users. The industry benchmark is 99.9% guaranteed uptime, but most software vendors today promise 99.99% uptime.)

Other items that can be included in the SLA include response times, support, pricing structure, penalties for the provider not meeting guarantees, performance metrics and KPIs, customer data security, compliance, and more.

8. Subcontracting

A subcontracting clause will outline whether the SaaS service is legally allowed to subcontract out the supply or servicing of its software product on a given business day or on an emergency basis.

9. “Force Majeure” event

A “force majeure” event clause generally excuses a vendor’s non-performance or break in service when it is due to circumstances beyond its control. Examples of a force majeure event would be a pandemic or action by a government body, but it’s worth considering (and discussing) what else falls under the definition in each specific case.

How to monitor service level agreements (SLAs) After the SLA has been designed, written, and negotiated, you will need to ensure ongoing monitoring. This might include:

Reporting on the SLA metrics
Fixing issues
Executing any necessary upgrades or improvements
Contract lifecycle management tasks
Updating the SLA or metrics
Updating methods of reporting
Change management
Other administration and monitoring tasks

How to monitor service level agreements (SLAs)

After the SLA has been designed, written, and negotiated, you will need to ensure ongoing monitoring. This might include:

Reporting on the SLA metrics
Fixing issues
Executing any necessary upgrades or improvements
Updating the SLA or metrics
Updating methods of reporting
Change management
Other administration and monitoring tasks

How to sign a great SaaS agreement

Getting the best SaaS management and contract agreement terms can be tricky without an inside look at how each vendor operates and how they run their negotiation process.

Sastrify created a blog series to help you master service agreements, especially renewals, with some of the top SaaS solutions on the market:

Have another tool you want SaaS contract negotiation tips for? Let us know in the comments!

How do I write a SaaS agreement?

The SaaS vendor is typically responsible for drafting a SaaS contract agreement. However, the buyer can then negotiate to make any desired changes, ensuring that aspects like intellectual property rights, confidentiality terms, and licensing rights are properly addressed.

But writing SaaS contracts is so much easier when you start with a free template below.

Master Software (SaaS) & Service License Agreement Template

The SaaS procurement experts at Sastrify have extensive experience in negotiating SaaS contracts for business leaders, ensuring aspects like regulatory compliance and security policies are covered. That’s why we developed a free SaaS contract agreement template: to make it easy for SaaS buyers (or vendors) to easily create a SaaS service contract without wasting time and resources.

FAQs about SaaS agreements

Is a SaaS agreement similar to a terms and conditions agreement?

A Terms and Conditions agreement (T&C) is a contract between the vendor and the users that defines 1) what is being offered to customers and 2) what is expected from them in return. It is a major part of an overall SaaS agreement; however, the SaaS agreement is more all-encompassing and includes other aspects that wouldn’t be included in a basic T&C agreement.

What's a typical price increase I can expect when renewing my SaaS subscriptions?

The price you get on a SaaS renewal contract will depend largely on your negotiations, any changes to the contract, and the economic environment. With quality negotiating, commitments, and proper forecasting, you can likely even achieve a lower unit price at the renewal date. Learn more in our SaaS Spend Management Guide.

However, it’s also crucial to understand the larger economic forces at play during a renewal cycle. For instance, many SaaS companies have increased prices in 2022 due to factors like inflation, increased labor costs, retention requirements, and more. Our upcoming report on Preparing Your SaaS Stack for a Downturn will dive into how you can mitigate these concerns.

If you’re looking for a SaaS solution to negotiate better and save more money, Sastrify is precisely what you need. Take a look at these top 11 tools our customers save big on – we can help you negotiate any new SaaS contract or renewal with ease. See how much you could save here.

What's the difference between SLA and KPI?

Both Service Level Agreements (SLAs) and Key Performance Indicators (KPIs) provide useful information, but they are different. The SLA is a part of the overall SaaS agreement and outlines the service the vendor is committing to the buyer on both a qualitative and quantitative level.

A KPI is used to measure the vendor’s performance in comparison to its strategic goals. KPIs are often a part of the SaaS SLA, helping to measure the delivery of the service against the benchmarks laid out in a SaaS agreement.

Who owns the data in a SaaS agreement?

A SaaS agreement or SLA (Service Level Agreement) will cover a variety of topics, including 1) data ownership and security and 2) where SaaS applications and data are hosted. In most cases, the SaaS vendor hosts the application and data uploaded by their client. However, the customer generally retains ownership of their data. That being said, country-specific laws can have an impact.

To help get you started, we put together an easy-to-understand Master SaaS and Services Agreement free template that perfectly manages expectations and responsibilities. Copy the Google Doc, fill in the prompts and put pen to paper in under 5 minutes.

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