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Best practices on how to document and manage SaaS contract & agreement details, what to look out for and how to negotiate them with your SaaS vendor.
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SaaS contracts tend to be lengthy and overwhelming which is why important details often get overlooked. As a potential SaaS customer, one of your main concerns should be the fact that you are giving an off-site SaaS vendor control of your data.
Remember that a data breach could be extremely costly and put your organization’s whole reputation on the line. It is often only after such an incident, that users will check on their SaaS contract and SLAs.
That is why you should pay attention to the fine print concerning data access before it is too late – after all, it is the most overlooked aspect of SaaS contracts.
Information about data access
Traditional systems ensure that companies have sole access to their data stored on-premise. However, SaaS vendors by definition store your data in the cloud. While it should always be clearly stated that you own the data you create, the SaaS contract should also address the following questions:
Your SaaS agreement should clearly outline how long your team can access data following the termination of the contract. Typically, it's best to have access for at least 3-6 months to ensure that you'll have time to retrieve it.
In addition, make sure the contract details how you can access this data as well as the format of the data. You can either receive a data export or you can export it yourself through the SaaS API. Whatever you prefer, make sure the format is easy to use and aligns with your company's practices.
When negotiating your SaaS contracts, it's important to address each of these points. That way, you can avoid the risk of losing valuable data that is not only sensitive but also critical to business operations.
Chances are your business will keep adopting various SaaS solutions over time, which is why establishing best practices for negotiating, maintaining, and managing contracts for SaaS applications will save you from future headaches.
However, these best practices can vary from organization to organization. It is up to you to establish the best way to document important contract details and empower SaaS management.
Ideally, once the most important contract details are stored in a SaaS management platform or a different record-keeping system, they offer you a holistic view of the cloud-based software that your company owns. You should also know the difference between “enterprise contracts” and “click-through license agreements”. The latter typically favors the vendor, while enterprise contracts let you add additional items for contract compliance and security protections.
Below are our best practices that let you manage SaaS contracts with much more ease.
Not only is it important to follow best practices when it comes to new SaaS agreements. You should also look at your existing SaaS applications and review their respective agreements to bring hidden details to the surface. Once you create much-needed visibility, you can properly manage SaaS contracts with the goal to maximize value for your business.
After the discovery process, document each application’s contract details in a system of record that is easy to access and streamlines the review process. Some companies still use spreadsheets or contract management systems that aren’t designed for SaaS.
We recommend a system that lets you search by vendor or application and allows you to compare multiple contracts without having to reread the entire SaaS agreement.
General evaluation of applications can help evaluate SaaS agreements, but make sure to look for the items we previously mentioned in the checklist as well as the additional ones we added to the list below:
Companies gain the most value from their SaaS applications if they automate SaaS contract and renewal management with a SaaS management solution like LeanIX's SaaS Management Platform (SMP). The platform not only offers tools for dealing with SaaS contracts; it also helps you spot redundant SaaS contracts, duplicate licenses and identify and eliminate shadow IT.
With SMP as your automated SaaS contract management system, you maintain real-time SaaS visibility for organizing your entire SaaS eco-system in a way that increases productivity and minimizes cost.
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Many SaaS vendors obsess over monthly or annual recurring revenue growth to establish a critical mass of customers. You should keep this in mind when negotiating SaaS contracts, renewals, or True-ups, e.g. Microsoft EA True-up, as you can get discounts for an extended period of time.
SaaS agreements provide new challenges to IT and procurement, therefore, they require a different approach than a typical contract. SaaS renewal strategy created for IT and procurement explains storing decentralized contract details and assigning app ownership, which combined with renewal best practices aim to turn business leaders from reactive to proactive renewal approach.
Some SaaS providers are also open to “grandfathering” an existing customer in order to reduce churn. By understanding the intrinsic value levers and supporting negotiation conversations with actual usage data for each vendor, leaders can land attractive pricing and terms. Just build a case and ask.
SaaS prices are determined by policies that guide discounting and margin management. These are designed to either encourage or discourage certain behaviors and trends, depending on the vendor’s goals. PwC divides the common pricing components into the categories below:
Beneath the surface of each component has a supporting set of values, goals, or priorities that an insightful business leader should be able to capitalize on when negotiating a SaaS contract.
Consider the following scenarios where your awareness of a vendor’s pricing rationale and business goals could result in more favorable contract terms.
Understand SaaS vendor license types
More often than not, companies deploy enterprise-grade apps with unnecessary features. This is most common with tools like Salesforce or Office 365. You can build a baseline of user needs and then right-size license types based on the features and functionality needed.
Consider term discounts
Vendors need consistent cash flow and want to avoid customer churn. You can use this information when negotiating your SaaS agreement and get attractive discounts. Once you’ve identified your mission-critical apps, you can consolidate multiple SaaS contracts and propose a longer-term service extension.
Ask for loyalty discounts
Similar to term discounts, vendors care about the long-term value (LTV) of SaaS contracts. Funding, valuation, and Wall Street interest are all connected to contract value for SaaS companies. With this info in your back pocket, you can determine your longest-tenured relationships and ask those vendors for loyalty discounts.
Fear of churn
The SaaS model typically requires heavy investment in customer acquisition while the cost of keeping an existing customer is relatively low. If a SaaS vendor has a low lock-in with your company and there are good alternatives, use your bargaining power to get loyalty discounts or promotional pricing.
Consolidate for vendor discounts
With SaaS management platforms, you can quickly find redundant SaaS apps. In this step, you can consolidate app functions to a single vendor to increase your license need and leverage for negotiation. Just ask your preferred vendor for volume discounts and compare between competitors.
Logo power
If you work for a well-known company with great brand recognition, leveraging your logo power can get you a good discount. Many SaaS vendors have special accelerators in place to motivate sales teams to close high-profile industry names as they seek to build their category leadership in the market.
When negotiating SaaS agreements, remember that security and risk components are not set in stone. They can be adjusted to meet your needs – at least to some extent. To ensure that the security clauses in SaaS contracts protect your type of organization in the best way possible, take a look at the tips below.
Create a master list: Before starting a SaaS contract negotiation, create a master list of all risks that are relevant to your organization. In general, the bigger your planned service procurement, the more leverage you’ll have with the vendor.
Communicate the non-negotiable: Call in on your security team early on when negotiating SaaS contracts. That way, you ensure that non-negotiable security risks around data protection are covered before a SaaS solution is purchased.
Get additional protections: You can ask your vendor for additional protections. This could include language protecting you in case of a vendor acquisition or a vendor’s cybersecurity provisions.
Insist on early breach notification: When negotiating SaaS contracts, it’s advisable to include clauses that ensure prompt breach notification. This might be the most difficult point to negotiate as vendors don’t like to be pinned down to a specific timeline.
Managing SaaS contracts and agreements is a complex task that not only requires negotiation skills, but the visibility of your SaaS application landscape and a clear understanding of your leverage, your company’s needs, and how these needs can be protected.
SaaS management platforms are the most efficient way to streamline and manage your SaaS contracts, optimize your cloud spend, and stay in control of your data.
Take control of your SaaS today!
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