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SaaS Contract Management

SaaS contract management is a process of administering, monitoring, and negotiating contracts with SaaS providers to streamline expenditures and optimize value for money.

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SaaS Contract Management

Introduction

With the growing adoption of cloud-first environments, companies also accumulate a growing amount of SaaS contracts. If these important documents aren’t properly reviewed, stored, and managed it can have a negative impact on an enterprise.

It can increase wasted spend, and security risks, and slows down the discoverability of contract details before negotiating renewal terms.

That's where our SaaS Contract Management Hub comes in. This Hub is a definitive guide including a curated collection of guides, articles, posters, whitepapers, and other resources that provide a wealth of information.

Whether you're just getting started or you're a seasoned pro, you'll find valuable insights and practical advice that will ensure fluid SaaS contract management. 

📚 Related: SaaS Management Hub

 

What is SaaS contract management?

SaaS contract management is a process of administering, monitoring, and negotiating contracts with SaaS providers to streamline expenditures and optimize value for money.

This may include tasks such as keeping track of all contracts, assigning ownership, and delegating contract handling. It also includes aligning with stakeholders for negotiating terms and conditions, tracking contract end dates, and ensuring compliance with the terms of the contracts.

The ultimate goal is to get the most out of your SaaS solutions while keeping costs under control and ensuring compliance.

What is a SaaS contract?

A SaaS contract is a legally binding agreement between a SaaS provider and a customer. It outlines the terms and conditions of using the provider's software as a service.

It typically covers issues such as the pricing model, usage limitations, data privacy and security, service level agreements, and termination conditions.

SaaS contracts are essential for protecting both parties' interests and ensuring a smooth business relationship.

📚 Related: SaaS Agreement Checklist

SaaS contract lifecycle

The SaaS contract lifecycle consists of multiple stages that organizations must consider when managing and negotiating contracts. These stages include:

  1. Procurement: The process of selecting the most suitable SaaS provider based on the organization's specific needs and requirements.
  2. Contract negotiation: Identifying the key terms and making necessary agreements associated with the SaaS solution, including pricing, support, and service level agreements.
  3. Implementation: Deploying the SaaS solution, integrating it with the company's existing infrastructure, and training users.
  4. Renewal: Re-evaluating the terms and conditions of the contract, utilization, criticality, as well as performance of the SaaS provider, prior to the contract's expiration date.
  5. Termination: Ending the contract and transitioning to another solution or provider, if necessary.

Understanding these stages allows organizations to better manage their SaaS contracts and reduce the risks associated with potential contract misunderstandings or disputes.

SaaS contract management vs. contract lifecycle management

Most companies use contract lifecycle management systems for contract creation, storage, and tracking of contracts and vendor data.

But they usually don’t provide spend and usage information or budgeting capabilities for strategic planning and forecasting.

This is where SaaS management tools come into play. They automatically build application inventory and provide contract details, current and forecast spend, renewal alerts, and usage information for each application.

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Why do you need to manage SaaS contracts? (Business case)

With the rapid growth of SaaS expenditure, it becomes more and more challenging for companies to get control of their IT landscape and costs.

Some of the pain points companies without a SaaS contract management system face are:

  • More than half of SaaS in a company is unknown and non-centrally managed
  • 30% of SaaS spend is wasted due to poor license management (Gartner)
  • 43% of organizations are unable to locate a stored contract (Gartner)
  • Manual uploading and tracking of contracts, lack of contract metadata (such as spend, termination notice)
  • Negotiation and renewals of contracts take a lot of time
  • Risk of cost explosion as individual departments and people continue adding new software on the fly

 

What are the benefits?

Effective SaaS contract management practices unlock huge potential for IT, Procurement, and Finance departments. Keeping one system-of-a-record allows you to have complete visibility over all SaaS contracts and brings plenty of other benefits, such as:

  • Tackle renewals proactively: With renewal alerts and usage insights, you will no longer auto-renew important subscriptions that were previously hidden from your view.
  • Improve budgeting: Visualize and understand the financial impact of all SaaS renewals.
  • Reduce operational costs: Some vendors, such as LeanIX SMP offer a collaborative approach bringing insights for FI, IT, InfoSec, and Procurement together. This way they spend less time finding contract information and renegotiating & renewing contracts.
  • Minimize wasted SaaS spend: Remove inefficiencies in the current SaaS portfolio and optimize SaaS contracts based on actual usage.
  • Ensure flexibility: Scale up or down all subscriptions and licenses as needed to be in line with your business needs.
  • Enable governance of contract management: Collaborative approach to contracts enables standardization of the renewal process by adding clear roles and responsibilities.
  • Ensure compliance: Ensure that SaaS solutions used within your organization comply with the contract terms, company's policies, and industry standards.

📚 Related: SaaS Agreement Checklist

 

What are the challenges?

Due to the amount of new SaaS contracts created, businesses come across many challenges which weren't present when the software was purchased as on-prem.

Most do overlap with SaaS renewal challenges but we will add a few overall ones.

  • Non-central and easy purchasing: In organizations where SaaS purchases are made by different teams, it can be challenging to maintain an up-to-date inventory of SaaS applications. This leads to difficulties in tracking contract renewals and their usage, resulting in unnecessary costs.
  • Large contract volumes: Organizations may have a large number of SaaS contracts to manage, each with different terms, conditions, and renewal dates. Keeping track of all these contracts can be a time-consuming and complex process.
  • Complex pricing models: SaaS contracts often include complex pricing models, with various pricing structures, service level agreements, and other terms and conditions. This makes it challenging to understand the true cost of SaaS applications and optimize their use.
  • Autorenewals: Many SaaS contracts include automatic renewal clauses, which can result in companies continuing to pay for services they no longer need or use. Tracking autorenewals and managing contract renewals effectively can be challenging. Especially if there are multiple SaaS providers to negotiate with, each with its own renewal policies and procedures.

To overcome these challenges, organizations need to develop an effective SaaS contract management strategy.

It includes implementing centralized procurement processes, developing policies and procedures, and investing in technology solutions to automate contract management and tracking.

How? Just follow along.

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Manage SaaS contracts in 5 steps (SaaS contract management strategy)

By following a structured approach and implementing best practices, businesses can effectively manage their SaaS contracts.

You can use a manual spreadsheet or automate it with a SaaS management solution that streamlines the process and reduces the effort required.

Here are the five key steps to managing SaaS contracts.

1. Build your inventory

SaaS inventory (SaaS stack) is a list of all the SaaS applications that are currently deployed in an organization. It includes all applications and their contracts, costs, licenses, owners, usage, and other relevant details.

Automate inventory collection by implementing SaaS management tools, such as LeanIX SMP.

📚 Related: How to Build an Application Inventory?

2. Assign application owners

If you don't keep track of who owns a SaaS application, it can be hard to cancel or renew it when needed. Sometimes, nobody knows who owns it, or the owner has already left the company. This can cause you to miss the negotiation deadline.

To avoid this problem, assign someone to be the owner of each application from the beginning. This information should be kept with the other contract details.

If your policies allow, the owner of the application is responsible for renewing it when needed. If the owner leaves the company, someone else needs to be assigned to take over the role.

📚 Related: SaaS Contract Negotiation

3. Set up contract renewal alerts

Setting up contract renewal alerts is an essential step in the SaaS contract management process. It helps you to stay ahead of renewal dates and avoid unnecessary auto-renewals.

Set up alerts:

  • 90 days before the renewal date
  • 15-30 days before the renewal date

The renewal alerts will remind you of upcoming contract renewal dates, so you'll have sufficient time to renegotiate terms or cancel the contract.

Contract renewals are an important revenue stream and success factor for SaaS vendors.

Most often, SaaS vendors allow changing contracts within 90 days before the renewal date. 

📚 Related: Microsoft EA and true-Up Renewal

4. Analyze and optimize

In this step, you will determine if the specific contract is valuable to your business to be kept. Begin with a basic assessment:

  • Criticality
  • Budget
  • Compliance

If any of the contracts after this assessment don't pass your criteria, feel free to terminate them. For all other contracts, you can move forward and analyze the application's consumption.

This will help you determine if the cost can be optimized based on the actual usage of the application in question.

Some of the insights you should look into are:

  • Adoption
  • Utilization
  • Costs

With this analysis completed you're now able to define the contract volume and licenses which can help you project future budget change.

📚 Related: Best Practices for SaaS Renewals

5. Define guidelines

SaaS contracts can be a challenge without a clear strategy in place especially when the owner of the application and renewal process are unclear.

This can lead to unnecessary cloud spend and a cluttered IT environment. To avoid this, it is important to define a strategy beforehand and communicate it to application owners.

This strategy should include a timeline for each step of the contract management process, as well as guidelines for internal and external outreach procedures.

The SaaS contract strategy should be a written document that is easily accessible to all current and future employees.

📚 Related: SaaS Renewal Strategy

Conclusion

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.

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A Guide to Optimize SaaS Contract Management

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Frequently asked questions on SaaS contract management

What is SaaS contract management?

SaaS contract management is a process of administering, monitoring, and negotiating contracts with SaaS providers to streamline expenditures and optimize value for money.

What is a SaaS contract?

A SaaS contract is a legally binding agreement between a SaaS provider and a customer. It outlines the terms and conditions of using the provider's software as a service.

Why do you need to manage SaaS contracts?

With the rapid growth of SaaS expenditure, it becomes more and more challenging for companies to get control of their IT landscape and costs.

What are the SaaS contract management benefits?

Effective SaaS contract management practices unlock huge potential for IT, Procurement, and Finance departments. Keeping one system-of-a-record allows you to have complete visibility over all SaaS contracts, their owner, costs, renewals, and utilization.

How to manage SaaS contracts?

To effectively manage SaaS contracts, it's essential to follow the next steps:
1. Build your application inventory
2. Assign application owners
3. Set up contract renewal alerts
4. Analyze and optimize
5. Define contract guidelines

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