Octobits Blog – A well-drafted SaaS subscription agreement lays out the terms for businesses accessing software through cloud services. It makes sure things run smoothly while keeping costs down.
It’s important to review these agreements carefully, as they involve third-party management of critical data, which introduces various risks, especially regarding data security and service availability.
As more and more businesses are turning to the cloud, there’s a greater need than ever to make sure you do your homework and negotiate properly.
In this context, it’s important to understand key terms like data ownership, warranties, and SLAs (Service Level Agreements) to avoid any issues and make sure the service is delivered properly.
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ToggleHow Does a SaaS Subscription Agreement Differ from Traditional Software Licences?
A SaaS subscription agreement is a whole different ballgame from traditional software licencing agreements.
In a traditional licencing setup, the software is installed on the customer’s hardware, and they have control over their data and upgrades.
On the other hand, in a SaaS model, the software is hosted by a third-party provider in the cloud, and customers access it remotely.
This change means customers hand over a bit of control over the application, data, and the ability to customise the software.
With traditional software, you often have to pay a lot upfront, then maintenance fees, whereas with SaaS, you pay a subscription fee upfront, but then just ongoing payments.
Another thing that sets SaaS agreements apart is how upgrades are handled. With SaaS, the provider can roll out upgrades across the platform without having to get the customer involved, which is great for efficiency but less flexible when it comes to customisation.
For a detailed comparison, please refer to “SaaS vs. Subscription Comparison: Pros, Cons, and When to Choose Each.”
What is Included in a Subscription Agreement?
Service Description
This section sets out exactly what the SaaS offering includes. It should list all the software modules, features, and functionalities included in the subscription.
For example, the agreement could outline different service levels or modules included in the subscription, so the customer knows exactly what they’re paying for.
Term and Termination
This part of the agreement is about how long the SaaS subscription lasts and when it can be ended.
It should also cover how long the first subscription period is, which is often shorter than with traditional on-premises licences.
In many SaaS full-form templates, there are clauses that allow for termination under certain conditions, such as breach of contract, non-payment, or failure to meet performance metrics.
The termination clauses are vital because they affect how the business continues to operate.
Also, customers must negotiate terms that allow them to retrieve data and transfer services.
Pricing and Payment Terms
This section is all about the fees for the SaaS subscription and any extra services. In this SaaS contract management section, it should be clear about the subscription fees, pricing model, payment schedule, any increases to the fees, and taxes and withholding.
It’s also worth noting any additional costs, like overage fees for exceeding data limits or extra charges for features.
It’s a good idea to make sure the contract explains what’s included in the subscription so you don’t get any nasty surprises.
For more insights about pricing, kindly check “What are SaaS Subscription Pricing Models? A Beginner’s Guide.”
Service Level Agreements (SLAs)
SLAs set out the standards for how the SaaS service should perform, including things like availability, response times, and how problems should be fixed.
They should cover things like availability, performance, problem resolution, what to do if there’s a breach of the SLA, and monitoring and reporting.
A good SLA protects the customer by making sure the provider meets important performance standards.
Data Ownership and Privacy
One of the most important things to think about in a SaaS subscription agreement is who owns the data. After all, customers are storing sensitive information on third-party servers.
The agreement should make it clear that the customer owns their data and set out how it is handled, including who can access it, how it is backed up, and what privacy standards apply.
With tighter regulation on the way, especially in places with strong data protection laws, it’s more important than ever to stay compliant.
Intellectual Property Rights
This section is about who owns and licences the intellectual property related to the SaaS service.
This usually includes ownership of the SaaS, a licence grant, restrictions on use, and an indemnity for intellectual property infringement.
While the SaaS provider usually keeps the intellectual property (IP) rights to the software, the customer needs to make sure they have the right to use it as needed without breaking any IP laws.
It’s also a good idea to make sure you’re protected if you’re storing any of your own data on the provider’s platform.
Confidentiality
This section sets out what both parties need to do to protect each other’s confidential information.
It usually includes a pretty broad definition of sensitive business info, like financial data, trade secrets, customer lists, and technical specs.
The SaaS provider has to agree to keep the customer’s data confidential, while the customer has to protect the provider’s proprietary technology.
Clear confidentiality terms help to reduce risks, especially in industries where data is a big deal, like healthcare and finance.
For reference on several SaaS management tools, kindly read “5 Best Subscription Management SaaS for 2025: Features, Pros, & Cons.”
Warranties and Disclaimers
This section outlines what the service provider promises about the SaaS service and any limits to their liability.
Providers often exclude guarantees about the software being suitable for a specific purpose.
It’s a good idea for customers to try to negotiate warranties that protect their use of the service and ensure reliable performance.
Also, this section says the written agreement is the whole agreement between the two parties, and overrides any previous or simultaneous conversations.
Limitation of Liability
This section is designed to limit the financial risk for the service provider in the event of certain types of damages.
It usually means there’s a limit on how much the service provider can be held liable for, which is usually tied to a multiple of the fees paid by the customer or a specific dollar amount.
We can also see that there are a few exclusions of consequential damages.
These exclusions usually cover things like lost profits, business interruption or loss of data, even if the service provider is responsible.
Then there are exceptions to the limitations. So, some pretty serious breaches, like gross negligence, deliberate wrongdoing, or breaches of confidentiality or data security obligations, might be excluded from the liability limitations.
Indemnification
Indemnification clauses set out what one party has to do to protect the other from certain liabilities.
This section covers a few important areas, including service provider indemnity and customer indemnity.
Next, we can see the types of claims that are covered, such as intellectual property infringement, data breaches, or violations of laws.
There are also a few things that aren’t covered. There are some cases where the indemnification obligations don’t apply, like if the indemnified party is negligent or breaches the contract.
Governing Law and Jurisdiction
This part of the agreement says which country’s laws will be used to make sure that the agreement is properly understood and enforced.
The two parties choose which state or country’s laws they want to apply, which makes sure that they both understand the relevant legal framework.
It also sets out which court or jurisdiction will deal with any legal disputes, which gives everyone a clear idea of what to expect and could help cut down on legal costs.
Force Majeure
This clause lets you out of your obligations if something outside your control happens, like a natural disaster, a pandemic, or government action.
In several SaaS agreement templates, there is a list that shows us what specific events qualify as force majeure, or what general descriptions of unforeseeable and unavoidable occurrences we’re talking about.
Then we can see how long the excuse lasts. Also, the affected party has to take reasonable steps to try to limit the impact of the force majeure event and get back to performing their obligations as soon as they can.
Best Practices for Drafting and Negotiating SaaS Agreements
When you’re negotiating a SaaS subscription agreement, please understand the pros and cons of SaaS and to make sure the contract suits the customer’s business needs.
For typical challenges in SaaS management, please refer to “Tackling Common Challenges in B2B SaaS Subscription Management.”
It’s a good idea to have a proper look over the agreement with a lawyer, so you can spot the bits that are good for you, like things that will keep costs down and make sure everything runs smoothly.
SaaS contracts aren’t just about software access. They involve long-term commitments that can impact various aspects of a business.
The first thing you need to do when you’re looking to get a SaaS deal is to do a risk-benefit analysis that’s specific to how you’re going to use it.
This review shouldn’t just focus on IT concerns, but should also consider the broader implications for the whole business, to make sure the service aligns with operational goals.
Once you’ve decided to go ahead, the SaaS subscription should make it clear what you can use it for, so it’s right for you, your colleagues and the people who provide the service.
The service provider should also make sure they document any promises they’ve made about availability and quality.
SLAs (Service Level Agreements) should make sure uptime, performance standards, and what to do if there’s a problem are all covered.
It’s also important to do acceptance testing to make sure the software meets the customer’s requirements before it’s fully deployed.
If the SaaS is a key part of how your business operates, the agreement should also set out what you can expect from technical support and problem resolution, so you can keep on top of things when the service is down.
Pricing structures should be clear and show both the initial costs and the ongoing fees.
And consider the ownership of data and confidentiality are two of the most important things to get right.
You need to make sure you protect sensitive customer information, stick to the legal rules, and make sure everyone knows how the data will be handled after the contract ends.
At the end of the day, if you negotiate these key elements carefully, you can get a SaaS agreement that is fair, flexible and in line with the customer’s strategic goals.
That’s why Octobits was created to help you tackle the tricky issues you’re facing with SaaS contracts that are spread out, licensing that isn’t as efficient as it could be, and security risks that are on the rise.
Our goal is to provide a simple, cost-effective solution that makes these processes easier for businesses.
By bringing all your licensing details together, keeping track of how you’re using it, and sending you alerts when you need them, Octobits helps businesses save money and get better deals with SaaS providers.
As a SaaS management platform, Octobits is a great, easy-to-use tool to give you more control over your SaaS contracts and keep your data safe.
This means you can negotiate SaaS agreements with confidence and efficiency, making sure your business’s operational needs are met.
In Closing
The key to getting the most out of your software, keeping costs down, and making sure your data is safe is to get the best deal on your SaaS contracts.
That’s why Octobits brings together all the key info and sets up alerts to help your business make smart decisions and get the best out of your SaaS deals.
That means you can get a better deal and stay compliant and efficient in your SaaS subscription agreement.