What is SaaS Contract Management? - A Complete Guide (2024)

You need a consolidated platform that streamlines contract negotiation, keeps track of approval workflows and stays on top of renewal dates. In this article, we will learn how SaaS contract management systems can provide complete visibility in one tab.

What is a SaaS contract?

A SaaS contract is the foundation of the relationship between an organization and the SaaS vendor. It is the legally binding agreement that defines how organizations use and pay for their SaaS. It typically includes: 

• Description of services provided by the vendor
• Pricing structure, billing frequency, taxes and payment methods
• Renewal timeframes and terms
• Data security and confidentiality
• Term and termination
• Intellectual property rights
• Service level agreement (SLA)
• Limitation of liability
• Governing laws and dispute resolution 

While every SaaS vendor will have a template contract, most of them allow great flexibility in the terms and conditions. This is the leverage organizations have to get a contract that serves them well.

SaaS contract: Why do you need it?

A robust SaaS contract protects both you and your software vendor. It crystallizes the terms you’ve agreed on and helps resolving disputes, if any arise. In case of a data breach, it limits the company’s liability and safeguards against revenue loss and customer loss. It strengthens your relationship with the software vendor ensuring the following.

Transparency: By clearly outlining the terms of software access and services provided, it can help prevent unexpected costs and save money in the long run. This is particularly important when adding new services to the SaaS stack.

Security: It considers all reasonable eventualities and sets guardrails for them. In case of a security attack, data breach, unauthorized access etc., it protects you and the software vendor.  

Flexibility: Your needs from the SaaS product you are buying might change depending on your growth, strategy and even economic conditions. A good SaaS contract empowers you to be flexible in such cases. 

Intellectual property delineation: Most organizations use SaaS tools to build their own products. A strong intellectual property clause assigns the ownership and usage rights of both parties.

Reliable customer-vendor relationship: A SaaS contract enhances the customer–vendor relationship by defining responsibilities, setting clear expectations, delivering flexibility, ensuring data privacy and providing a framework for dispute resolution. Further, it establishes trust, accountability and transparency between both parties.

Given how important it is to start a relationship with your SaaS vendor on the right foot, SaaS contracts need to be managed effectively. Here’s how.

How are SaaS contracts different from other contracts?

SaaS contracts are special and different from regular contracts in several ways.

• Focus on Service, Not Ownership: SaaS contracts focus on providing access to software as a service, covering terms like software uptime, support levels, and data management. Unlike traditional contracts, which involve the transfer of physical goods or one-time services and may include warranties or return policies, SaaS contracts focus on providing access to software as a service.
  
• Subscription-Based Model: These contracts are typically based on a subscription model, where customers pay a regular fee (monthly or yearly) for continuous access. The terms of renewal, cancellation, and service adjustment are detailed, differing from traditional contracts that generally require a single payment.
  
• Data Security and Privacy: Data security and privacy are crucial in SaaS contracts due to the provider's handling of customer data. This necessitates clear terms on data protection, access, and usage in compliance with privacy laws, a contrast to traditional contracts, where data handling might not be as central unless the service involves sensitive information directly.
  
• Service Level Agreements (SLAs): Service Level Agreements (SLAs) in SaaS contracts outline expected service performance, including software reliability (uptime) and response times for support, specifying compensation for failing to meet these standards, a detail less commonly found in traditional contracts, which might only provide quality guarantees at the time of sale.
  
• Scope of Access and Usage: SaaS contracts define the scope of software access and usage, including user limitations and customization options, in stark contrast to traditional contracts that focus on the sale and ownership of a product, including usage or resale restrictions.
• Updates and Maintenance: Regular updates and maintenance are included in SaaS subscription fees, ensuring customers have the latest software features without additional costs. Traditional contracts may require extra agreements or fees for updates or ongoing maintenance, especially for physical products or locally installed software.

Why is SaaS contract management difficult?

Managing SaaS contract can be difficult due to several reasons:

1. Varying subscription models: SaaS providers often offer multiple subscription plans with different features, usage limits, and pricing tiers. This variety makes contract management difficult because each customer may have a unique agreement based on their chosen plan. It requires personalized attention to ensure all terms are accurately maintained and fulfilled.
   
2. Dynamic pricing and discounts: Managing dynamic pricing structures and discounts in SaaS contracts can be incredibly complex, requiring constant vigilance to ensure accuracy. Spendflo addresses this challenge head-on by automating the tracking and application of discounts and dynamic pricing for SaaS providers. Its feature automatically updates contract terms based on predefined criteria, such as volume usage or loyalty milestones, and ensures that all discounts are applied correctly and transparently. This simplifies the management of complex pricing models and enhances customer satisfaction by providing clients always receive the benefits they're entitled to.
   
3. Compliance with data protection regulations: SaaS applications often deal with confidential information, requiring them to follow different data protection rules and laws, like GDPR and CCPA. Ensuring that every contract adheres to these regulations to avoid penalties adds another layer of complexity.
   
4. Integration and interoperability clauses: Many SaaS contracts include terms related to integrating the SaaS product with other tools or systems the customer uses. These clauses can be complex, as they need to detail the scope of integration, responsibility for integration-related issues, and any additional costs. Ensuring these terms are clear and easy to handle while meeting technical needs can be challenging.
   
5. Automatic renewals and cancellation terms: SaaS contracts often feature automatic renewal clauses, leading to confusion and dissatisfaction if not appropriately managed. Customers might be unaware of renewal dates or cancellation procedures, leading to disputes. Keeping track of these terms for each contract and communicating effectively with customers to avoid misunderstandings requires careful management.

What is SaaS contract management?

SaaS contract management is a method used to create, negotiate, sign, store and execute contracts for SaaS services. It unifies all your contracts in one place. 

Typically, organizations do this across multiple disparate tools such as emails, spreadsheets and Google Drive/Dropbox. This creates specific problems:

• Contracts are scattered across various inboxes
• Renewal contracts may get misplaced
• Contracts may expire, but payments might keep happening on auto-renewal
• All stakeholders may not have approved the contract
• Renewal conversations get reactive, initiated by the SaaS vendor

To prevent this and bring efficiency into the SaaS contract management process, a unified platform is essential.

SaaS contract management process with the right platform

SaaS contract management tools have changed the way businesses handle contracts. From procurement to renewal, these tools ensure efficient and streamlined contract management processes. The process will enable you to:

Ensure contracts terms are right for you

While a SaaS contract is typically drafted by the vendor, you can ask for terms and clauses to be included to protect you. This helps ensure consistency and accuracy, while minimizing errors. 

Collaborate with stakeholders in real-time 

A SaaS contract might need to go through procurement, IT, legal, finance and sometimes, even the CEO’s office, in addition to vendor teams. To prevent important aspects falling through the cracks, a good contract management solution can enable simultaneous collaboration, similar to platforms like Teams, Google Docs and Slack. People can work on documents together, track changes and use approval workflows to confirm proper review and sign-off.

Monitor and track the performance of your SaaS stack

You can easily monitor spend analytics, SaaS contract negotiation timelines, user interactions, clause modifications, enforcement dates and more. This data-driven approach allows you to make informed decisions, mitigate risk and monitor real-time performance.

Streamline your workflow—from procurement to renewals

SaaS contract management software provides you with a holistic view of contracts, guaranteeing seamless management throughout their lifecycle. Renewal alerts and notifications keep stakeholders informed, while the system lets you make easy contract amendments and additions when needed.

Use cases of SaaS contract management software

Contract management solutions benefit sales, HR, legal, procurement, finance, IT, compliance, marketing and operations teams in the following ways:

IT teams can monitor the status of software licenses and ensure that SLAs are being met. This prevents any issues with software access or performance and ensures that the organization is getting the most value from its SaaS subscriptions.

Compliance teams can track the status of regulatory and contractual obligations, preventing any issues with regulatory compliance. With clear visibility, they can also ensure that compliance is up-to-date, even as the regulations evolve.

HR and operations teams can track who owns and uses existing SaaS licenses to always stay on top of employee costs. They can also optimize SaaS spends by regularly evaluating user sentiment and rightsizing SaaS contracts.

Finance teams can have granular visibility into their SaaS spends. This is especially useful for usage-based pricing tools where the expenses can often be unpredictable.

The CEO's office can stay on top of the third-biggest expense on their P&L. They can conduct reviews based on real-time data and ROI projections.

Benefits of SaaS contract management software

From improving efficiency to effective dispute resolution, SaaS contract management can reduce cycle times, reduce administrative maintenance and do multiple tasks. Here are the key benefits of a SaaS contract management software: 

Reduced operational costs and improved budgeting

Implementing a contract management system enables streamlined contract information retrieval, renegotiation and renewal processes, saving time in reducing operational expenses. In addition, the comprehensive visualization and financial analysis capabilities help you understand the financial impact of SaaS renewals, enabling planning, monitoring and decision-making.

Minimal waste in SaaS spend

Leveraging the insights and analytics that the tool has to offer, you can identify inefficiencies in your SaaS portfolio and optimize contracts based on actual usage and unnecessary expenditures. Also, you can easily scale up or down subscriptions and licenses to align with your evolving business needs, ensuring optimal resource allocation.

Standardized processes to mitigate compliance risks 

The collaborative approach to contract facilitates standardization of the renewal process, establishing clear roles and responsibilities and ensuring consistent and efficient operations. So when you centralize a contract management system, ensure that your SaaS solution aligns with the contract terms, company policies and industry standards, reducing compliance risks.

SaaS contract management: Best practices

SaaS contract management helps simplify operations, reduce risks, and maximize benefits and value for both the companies offering SaaS and their customers. Even though managing these contracts can seem tricky, these best practices can help you handle these challenges.

Create a unified system of record

With 250+ tools used by various teams in the organization, a consolidated view of all contracts is essential. You can do this by organizing crucial information in a spreadsheet, including current spending, stakeholders, contract renewal dates and sales representative details. However, the manual effort involved in creating and updating this spreadsheet might be significant. A better approach is to use a tool like Spendflo to unify SaaS contracts.

Turn off auto-renewal to save costs

Auto-renewal clauses are common in SaaS contracts, but they can lead to unexpected costs and unused subscriptions. While buying any SaaS tool, ensure you’re not signing up for auto-renewals. For your existing contracts, conduct regular audits and proactively turn off auto-renewals. Reach out to your sales representatives or account managers to request alternative renewal terms that align with your needs.

Plan ahead of renewals

Never wait for SaaS providers to notify you about your contract expiry. Be proactive and stay ahead of the game. Aim to be at least 90 days ahead of the contract renewal deadline. This gives you ample time to evaluate costs, explore alternatives and negotiate new terms if required.

Replace credit cards with invoices

Avoid the hassle and potential risks associated with several stakeholders using company credit cards for SaaS purchases. Instead, ask SaaS vendors to raise invoices and issue a purchase order for them. Pay them based on these purchase orders.

Choose the right partner

When negotiating SaaS agreements, partner with companies that accommodate your growth and do not penalize you for exceeding usage limits during the contract period. Clarify these terms upfront to avoid surprises down the line.

Opt for longer agreement terms

SaaS vendors are more likely to offer bigger discounts when you opt for longer-term contracts. Use this to your advantage. If multi-year commitments are not feasible, negotiate cap rates to limit price increases within a certain range for upcoming renewals.

Future-proof your SaaS contracts 

Seek suppliers who understand and accommodate your scalability needs. Additionally, explore economies of scale for both major and minor software contracts to optimize spending and avoid overspending on unnecessary tools.

Monitor and analyze usage

Proactively track SaaS usage among your teams. Make renewal decisions based on how your teams are using and liking their SaaS tools. You can also use this data to inform your new procurement as well.

Building strong supplier relationships

Investing in building strong relationships with your SaaS suppliers reaps long-term benefits and potential cost savings. You can leverage your company’s reputation, customer testimonials or co-marketing opportunities to negotiate more feasible rates.

A quick checklist of must-haves in  SaaS contracts

While contract negotiation is a multi-faceted process, here are the SaaS contract negotiation checklist questions that you must ask:

• Who is the “licensee” in the contract? Does it include all users or just the buyer?
• How does the contract describe software use? Are there any limits or restrictions?
• When does the contract start and end?
• How is pricing shown in the contract? What is the total yearly cost for the buyer? Are there any extra fees?
• What kind of license does the vendor offer? Is it for one year or multiple years?
• How is the license renewed? Are there discounts for longer agreements?
• Does the contract include all your needs including software uptime, integration and support response times?
• Are there any non-negotiables for the vendor such as compatibility, features and data ownership?
• How does the vendor provide support? Is it described in the contract or a separate agreement?
• What protection does the vendor offer? This includes intellectual property, data breaches and confidentiality.
• Can the vendor access confidential information? Are there protections for confidentiality, privacy and security?
• How is the vendor’s liability limited? Is there a maximum amount they will accept? Are there exceptions?

Wrap up

SaaS contract management can improve contract lifecycle efficiency and save costs for companies. Put the “control” back in contracts with the Spendflo contract management suite.

Book your free demo today and save up to 30% on your SaaS spends.  

FAQs
What is the difference between a SaaS agreement and an MSA?

A SaaS agreement is a contract between a provider and a customer specifically for accessing and using cloud-based software. It outlines terms regarding usage rights, subscription fees, service levels, and data protection. An MSA (master service agreement), on the other hand, is a comprehensive contract that establishes the general terms and conditions of a business relationship, covering aspects like performance standards, payment terms, intellectual property rights, and liability issues. While a SaaS agreement focuses on software services, an MSA covers broader aspects of the partnership between service providers and clients.

What is a cloud-based contract management system?

A cloud-based contract management system is software hosted on the Internet, allowing businesses to create, store, manage, and track contracts digitally. This system provides secure access to contract data from anywhere, at any time, facilitating better collaboration, reducing the risk of lost or mismanaged documents, and streamlining the entire contract lifecycle from drafting through execution to renewal or termination. It often includes automated reminders, electronic signatures, and analytics for better contract oversight.

Do you need a contract for SaaS?

Yes, a contract is essential for SaaS offerings. This contract, often called a SaaS agreement, outlines the terms and conditions under which customers can use the software, including subscription fees, service level agreements (SLAs), data handling policies, and user rights. It protects both the service provider and the customer by clearly defining expectations, responsibilities, and recourse in the event of service issues or disputes.

What is the difference between CRM and contract management?

CRM and contract management serve different purposes in a business setting. CRM systems help companies handle their dealings with both existing and potential clients. By analyzing data, they improve sales activities, offer customer support, and nurture relationships. However, Contract management manages legal agreements between parties, such as customers, partners, or suppliers. It involves the creation, execution, and analysis of contracts to ensure compliance, performance, and efficiency in business operations.

Why use contract management software?

Contract management software offers several advantages, including improved efficiency, reduced risk, and compliance. It automates many aspects of the contract lifecycle, from drafting and signing to renewal, making processes faster and reducing the likelihood of errors. This software ensures all contracts are stored securely in one place, making them easily accessible and trackable. Additionally, it helps businesses stay compliant with regulations and contractual obligations by providing tools for monitoring contract terms and deadlines.