How to Understand, Analyze & Optimize SaaS Agreements: Comprehensive Checklist & Tips

SaaS agreements are often a complex beast with multiple clauses covering areas such as data security, service levels, pricing, and termination conditions.

This complexity can be disruptive to approval and negotiation workflows, and may result in unfavorable terms for your business that fall beneath industry standards.

So, how can you ensure you’re getting fair pricing, a transparent agreement, and the service level you need in a SaaS agreement?

In this article, we’ll help you understand SaaS agreements so you know how to analyze them and optimize negotiations moving forward with expert advice from Vendr’s Manager SaaS Consulting, Michael Singer, whose insights include:

• How to evaluate contracts to minimize unpredictable pricing shifts
• How to use pricing benchmarks to your advantage
• The pricing uplift language to look out for
• The standard payment terms for annual contracts

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What is a SaaS agreement?

A SaaS agreement is a contract between a SaaS supplier and their customers that defines the terms in which users can access and use the product. It often includes details about subscription management and payment. 

Unlike traditional standard software licensing agreements, SaaS agreements typically focus on subscription contracts that may be billed monthly or annually instead of a single flat fee. As a result, these contracts are often open to more negotiation and may be more complex, which is why many of our clients turn to Vendr to help demystify the pricing and negotiation processes.

Key components of a SaaS agreement

SaaS agreements typically include these key components:

• Subscription terms
• Pricing details, including miscellaneous costs like onboarding or set up fees
• Service like commitments 
• Subscription active dates, including start and end dates
• Renewal timelines 
• Access rights and number of users 

Common clauses in SaaS agreements

SaaS agreements often contain the following clauses:

• Termination conditions, which define cancellation terms and specify under what conditions either party can terminate the contract. Termination for convenience clauses allows either party to cancel the subscription plan at any time. 
• Renewal terms, which define when a contract will be renewed and whether it requires manual or automatic renewal of a subscription plan. 
• Limitations of liability, which may limit customers from filing certain types of legal claims or put a cap on the amount of money that can be awarded during a lawsuit. 
• Scope of license, which details users who can access the SaaS product and how they can use it. These clauses often prohibit reverse engineering or reselling to protect intellectual property rights.   
• Data ownership and security, which detail how businesses may use customers’ personal data and may define steps taken for customer data protection. 

How to Analyze & Optimize SaaS Agreements

Knowing how to assess SaaS agreements can help during the negotiation and contract optimization process, ensuring that you’re entering contracts that truly work for you. 

Review subscription terms

Subscription terms may define the following:

• Number of users, types of users, or specific users who can access the SaaS subscription
• Included features and functionality
• Usage limitations
• Processes for upgrades, downgrades, or cancellation 

Evaluate pricing and payment terms

When it comes to pricing and payment terms, Michael has clear advice: 

“Work with your finance team to understand what payment terms are required for your business. Net-30 and annual contracts are the standard when it comes to SaaS agreements, if your contract has terms that differ from these, make sure you’re getting something in return in the form of discounting, free product, or free licenses.”

Use Vendr’s transparent pricing benchmarks to negotiate more favorable terms, using the information as guides during negotiations to ask for more competitive pricing or better payment terms. 

“Pricing benchmarks are key when negotiating SaaS but it's best to use this as guides and not strict rules,” Michael shared. “Don't be afraid to try and push beyond benchmarks if you have a good relationship with the supplier or a compelling business case to do so, keeping in mind that the best asks are ones that can be justified.” 

Assess service level agreements (SLAs)

Service level agreements detail guaranteed performance standards, which may include service availability with uptime guarantees. They may also include guaranteed response times from customer support services. 

Centralize & monitor your agreements 

Monitoring ongoing and in-negotiation contracts is essential to compliance and optimize both usage and tech spend. 

Centralize your agreements using Vendr’s procurement and spend management software. We’ll help you track your total spend, manage supplier relationships, organize contracts and agreements, and receive notifications about upcoming renewals. 

You’ll have a single source of truth that protects you from lapsed subscriptions and automated workflows that save you from having to chase after stakeholder approvals. 

Leverage Vendr's contract analysis

Vendr’s contract analysis can help companies better understand their SaaS agreements, providing invaluable support during the negotiation process. We’ll pull insights from existing contracts, giving you industry benchmarks, anchor targets, and a thorough evaluation of risks and terms. 

SaaS agreement checklist: what to look for before signing

After negotiations have concluded, closely review your SaaS agreement using this checklist. Remember: Your SaaS agreement should benefit both parties. 

Subscription terms and renewal policies

Check your contract for auto-renewal policies, logo rights, and cancellation terms, and consider these tips from Michael Singer:

• Remove auto-renewal clauses on all of your contracts; some suppliers have 90+ day windows of notice. 
• Review pricing uplift language, with a good pricing uplift being around 0%-5%. 
• Assess usage, features, and functionality included; look for potential exclusions. 

“Evaluating contracts with the long term in mind,” Michael said. 

“Predictability is key for not letting SaaS contracts spiral out of control. If there is nothing in the contract that tells you what will happen to the pricing next year, or nothing that outlines growth you need to include this in. Even agreeing to a small uplift (3%-5%) can help avoid larger pricing changes and give you predictability.”

Pricing and payment terms

Ensure that the bottom-line pricing aligns with your usage needs and your budget, checking the subscription model’s pricing against the total cost. 

You should also review payment terms. Net-30 or annual payment options are standard. Work with your financial team to ensure that the payment terms works for your business, potentially balancing factors like optimizing cash flow or leveraging annual pricing to secure a discount.

Service level agreements (SLAs)

These are the most essential SLA components to verify: 

Your SLA should define:

• Which services and functions you have access to
• Service performance and availability
• Reasonable efforts for strong performance
• Metrics that may be used to define service performance, such as uptime or downtime 
• Force majeure clauses detailing acceptable unusual circumstances preventing SaaS service providers from meeting SLA agreements
• Recourse when SaaS companies fail to uphold SLAs 

Data security and compliance

Data security and compliance ensure that the SaaS provider is adhering to all relevant regulations and standards. Check for the following:

• Specific privacy guidelines that determine how data is used and shared
• Security practices, including data management, encryption, and access management features
• Potential security certifications or standards, like SOC 2 compliance or an ISO27001 certification
• Adherence to security practices required by industry regulations like HIPAA

Termination and liability clauses

Check your agreement’s termination and liability clauses to understand the following:

• The terms required for cancellation by either party, and note that clauses of convenience can cause either party to cancel the contract at any point 
• Terms defining refunded or prorated rates for cancellations or downgrades
• Exclusions or limitations included in liability clauses that can impact the legal claims or damages you can sue for

Get the best terms and easily manage all your SaaS contracts with Vendr

SaaS agreements are legally binding documents, so it’s important to remember that you don’t have to sign the first document they send your way. You can negotiate pricing, payment terms, and specific clauses to suit the needs of your team and business.

However, a key problem you face is the lack of transparency. You might go into negotiations and not know the industry standards or what concessions are reasonable to ask for.

While this can be a complex process, Vendr’s contract management software helps you navigate, analyze, and optimize your contracts for better value and reduced risk. 

Whether you leverage our pricing benchmarks or our contract analysis (or both!), we’re ready to help you secure SaaS contracts that actually benefit your business. 

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