Top 10 SaaS Contract best practices- Complete Guide

SaaS Contract best practices

If you are involved in online business time will come when you need a contract for the business. In this article, we’re going to cover the Top 10 Saas Contract best practices that every business owners need to be aware of.

This is necessary for the continued growth of the business. SaaS contract model should come to your mind especially when the business acquires IT software and it is one hundred percent online based. When this becomes the issue, you must be very careful in the contract. This implies that you must be very careful when you are negotiating for that contract. The information here is going to assist you.

What is a SaaS platform?

This is referred to as Software as a Service and it is a way of delivering application online as a service. This is cheaper and better than installing and maintaining software, you can get access to this one through the internet.

The advantage is that you no longer need to bother yourself with the complex situation of acquiring and maintaining hardware. Sometimes, this is referred to as web-based software or on the demand software and hosted software. It may not be easy to manage hardware.

This application depends on the SaaS provider’s servers. The provider of the service manages the application for you including the issues of availability, security as well as performance.

This service is cloud-based. It does not depend on downloading the software to the desktop to your system. You can get access to that application through the internet using your computer or smartphone browser.

The software application varies and it includes such systems as business apps, unified communication systems of any type as well as office software, and so on. It is cheaper for the business owner because it deals with the problem of hardware installation and maintenance.

You can have access to the system when you want and it is compatible with the different operating systems and the operational management does not pose any difficulty.

It is even cheaper than maintaining hardware of your own and it requires lower upfront costs and cheaper than the traditional software. The system is readily available for wider applications and it can serve different kinds of businesses.

This requires an internet connection to function. An advanced internet connection and 5G makes this less difficult. Many people are enjoying it because it comes with plenty of possibilities. Some models work on an offline basis and this offers basic functionality. 

10 Best SaaS contract practices

SaaS Contract best practices

1. Establish a ground rule

2. Know about your negotiating position upwards

3. The contract negotiation begins with the first meeting

4. Keep track of any written as well as verbal agreements

5.Know those in your team and their ability to negotiate for you

6. Right from the beginning be forthright about what you want

7. Focus on what could be the liability issue

8. Take the issue of pricing seriously

9. Ensure that the contract comes with the right to terminate

10.Demand for rights to audit

What are Software contracts?

Software contracts

The major aspect of SaaS is a contract since you are going to host the software on another provider’s server. It is not hosted on the user’s computer and one can access it through the internet. This is subscription-based and the modalities of the host, as well as the arrangement, are to be worked out through the contract.

Whenever that subscription comes to an end it implies that the customer will no longer have the opportunity to use the device again.

This brings in the aspect of legal documentation and this is constructed to define rights and obligations applying to both parties. The agreement or contract has to cover two important aspects and these include the Service Level Agreement and the second aspect is the Data Protection Clause. 

The service level aspect of the contract will take into consideration the level of service which the company offers the customer. This is to reflect in the type of hosting, support as well as maintenance services that are required from the service provider to the customer. The customer varies and they include individuals, companies as well as institutions.

There are several things the contract terms must take into consideration such as the lengths of the warranty period, the contract terms, as well as the type of services vendors, will provide, and what you are going to offer. 

The custom software terms must be well laid out and this must include all aspects of deliverable and it has to include that thing the customer expects the software to deliver.

It also has to take into consideration the custom software timeline. This software agreement must come with a timeline. It covers the period the project will through and it has to incorporate the needs and from you can tell whether the timeline is reasonable or whether it is not.

The contract can also take into consideration materials that are necessary for the contract project. This aspect comes from the company making the software. This covers such an aspect as equipment, servers, as well as staff. When the contract is finished then it has to take into consideration the cost of materials for that project.

The most important aspect of that contract is the price breakdown. This has to be simplified such that the price is detailed and it details how the cost will be met and so on.

There are also time and materials contracts. The payment method is to be part of it and it takes into consideration how the business is to pay the developer for the contract.

SaaS contract involves all aspects of the services. It is possible to negotiate contract terms with the company. The playing ground the customer has when it comes to negotiation is determined by the company. Smaller companies will be open to negotiations more than big companies.

Big companies will be ready when it involves wholesale changes. Whatever you see it, small copies are open to negotiation more than big companies. Before you embark on the project you must consider this aspect because it matters. Perhaps during negotiation, you can reduce costs and so on.

Before you make a choice, you can consider various options. Customers must take out time and review various providers. Customers must review the provider’s contractual terms and know whether that would be favorable.

What should be included in a SaaS agreement?

SaaS Contract best practices

The SaaS agreement is what drives the business relationship between the customer and the provider. There are important parts that should form part of that agreement and they include the following:

The most important aspects to take care of include license and payment, client obligations, support and service levels, privacy, termination as well as dispute and resolution

  • License and payment

The major payment customer is making for the project is for the license to use the software as well as technical support from the company when there is an issue and for an upgrade.

The software must be tailored to the need of the business they are to serve. All payment may not be restricted to the technical support and software design, there could be other minor payments that could be made. You must determine the number of accounts you are paying for before you endorse the agreement.

  • Client or customer’s obligations

This is another aspect of the agreement. It includes those things the customer is going to benefit from using the provider’s services. Customers must be aware of those obligations especially those that have to do with what they offer the providers.

Customers must be aware of those obligations and they must ensure that they do not breach the agreement.

When it comes to the client’s obligations, the customer should be aware of those obligations. Furthermore, when they are aware of that, they must also ensure that they are reasonable and practicable. The implication is that the obligations are achievable.

This can cover different areas and the basic ones amongst them include making it possible for only authorized users to gain access to the service.

It also must acknowledge that you permit the service providers unrestricted access to your information and hardware. They can also make changes to your software and ICT delivery in the quest to provide better services.

  • Support and service levels

This is the other aspect the agreement must take into consideration. It includes those obligations or promises which the service provider must make for the client’s software.

Customers will require an assurance that the provider will come to their help when they need to support to fix an urgent hardware or software problem.

The solution should incorporate a few things that are important to the good running of the software and these include 

Support procedure and this include those procedures or steps one can take to get help from the company when the need for that arises. They may require you their line when there is a need for help.

It also has to include the hours that support it. The hours of support available are important and you must know whether it is suitable for you especially as regards the hours of your business.

Furthermore, it must stipulate the response time. The provider should come to your help as soon as reasonably possible. You should explain and define the longest you can wait for that assistance to come from the provider.

If it comes within the first ten to thirty minutes of lodging the complaint, it would be better for you.

Compensation is another aspect it must cover and the provider has to outline those compensations they demand their services they offer you.

  • Privacy

Moreover, it must cover the issue of privacy. It must include how the business intends to collect personal information and how they intend to use such information. This aspect aims to ensure whether the business must comply with the privacy laws operating in the state.

  • Dispute resolution

This is the fifth aspect of the agreement. This must be there. The service provider as well as the client must do everything to ensure that they do not end in court. It has to include those mandatory steps to take before any of the aggrieved parties can go to court.

  • Termination

After entering the SaaS agreement the contract has been binding and this has been the situation until the agreement and contracts come to an end. Before the commencement of the agreement, there could be a trial period and within that trial period, one party is free to terminate that agreement.

Some providers do not allow that trial period. Others can terminate it when it is breached. The contract agreement must spell out all these things.

How do you negotiate a SaaS contract?

SaaS Contract best practices

When you are negotiating for the SaaS contracts, there are some important factors to focus on and they include the following:

  • Pricing and discounts

Determining the pricing methods such as the pricing period whether it is monthly, quarterly, and yearly. The metrics must be clear.

  • Additional cost

While determining the pricing, ensure that it is as clear as possible. There should be nothing like additional costs and if there are additional costs you should find and determine whether you can afford it or not.

  • Term

Furthermore, it is important to negotiate contract terms. The terms have to spell out everything and it has to be favorable to you. If there is anything you do not understand ask more questions about it.

  • Service level agreements

Irrespective of the payment, the vendor or provider must ensure that the software uptime is 99.9 percent. This is very important and it should not miss in action.

  • Renewals 

It should come with period renewal options and that renewal options will allow you to get out of it when you want if the setup is not favorable to you.

  • Scalable pricing

It must provide an opportunity to move upwards and downwards. The agreement must be flexible enough so that you can improve or decrease your services with the provider.

  • Support

This is very important and you must check very well all those things that included in the support package. Ensure that support must be available 24/7.

  • Backup and recovery

Since it is possible that you can lose some of your data, the agreement or contract must come with the recovery options so that you do not lose or anything or that you do not lose much.

If you want to get the best from the contract negotiation, then ensure that

  • You assemble a good negotiation team
  • Ensure you understand TCs
  • Find out what the vendor motivations are and have leverage over that
  • Try to understand your best options using the scoring template
  • If it is not favorably, be ready to walk away

Rules for negotiating Software and IT contracts

  1. When you are negotiating for this kind of contract there are a lot of things to consider. When you are entering this kind of contract, there are important features to consider to ensure that they are available.
  2. When you are negotiating, ensure that you do not pay for maintenance unless you desire it. Even if you should pay it should not form part of the negotiation.
  3. When it comes to data security, do not rely on NDA. NDA relies on non-disclosure agreements for your data security.
  4. DO not depend on nor buy SaaS escrows it is useless for your business. It could be detrimental when it comes to the running of escrows.
  5. Your IP indemnity is critical 
  6. Check all the specifications and include and edit such specifications. Check through everything within the customized specification such as warranty, functionality, and so on.

Contract review checklist

SaaS Contract checklist

Contract review is important when you are signing a contract. There are some important steps you must take to ensure that you are on the right course.

Drafting is part of the process. Check through the drafting process to ensure that the business interest is well represents


Cross-check the contract that you have signed and before you sign to ensure that you understand everything before you commit the business to the contract.


If after you reviewed the contract and you believe that everything is not well, then you have to negotiate for what is acceptable to you. You must negotiate to have your way.


Once you are satisfied that your business interest is well covered in the process then you can sign it. Before you sign, this contract must be in your best interests.

If you get a lawyer to do the checklist for you, there are several factors to consider and they include

  • The agreement terms and where they feel it is not good for you, then you can negotiate because it is open for negotiation
  • They consider all areas and ensure that nothing is left blank
  • Where there are quantifiable terms, such has to be cleared like duration, price, as well as square foot and so on
  • They consider the renewal terms
  • Where there are risks how is it allocated?
  • It also takes care of the issue of indemnifications and holds harmless

The Contract Checklist also includes default terms, Reference documents, Termination, Remedies provisions, Important dates, deadline, Warranties, Rights and responsibility, Representations, Dispute resolutions.

Best Contract Management Software

SaaS Contract best practices

There is cloud-based contract management software you can use today to manage your businesses. Several of them are available in the market and you can compare them and make a choice. Some of the factors to consider include the price, features, and other features. 

Look for the software that offers you everything you need. This should cover everything you want such as contract generation, enforcement, pricing, and all aspects of contracts. The software is going to generate everything you want and it can accelerate the process. 

One thing is to have a high-quality CLM it is another thing to know how best to use it. You must learn how that software works and the best way to manage it to achieve your objectives.

Some of them come with automation features, ensure that it is integrated with your business models. They must come with the right tools like compliance management tools as well as risk assessment systems.

Cloud-based software is the best because of its higher functionality. There are lots of them out them and you can read reviews and watch users comment about them before you can make a choice. Moreover, check the features, ease of use, and functionalities. It should be software that can help process your contract and take care of your needs.


SaaS contracts provide the basis for the use of software and hosting of software by providers. The contract has to cover every aspect and it must take into consideration the interests of the business owner and the vendor’s interests.

The customer or the client must take a critical review of all contract issues to ensure that the business is well represented in all aspects right from the drafting and to the signing of the documents. This involves different stages and every stakeholder must consider this. 

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