SaaS Agreements 101: A Beginner’s Guide to Understanding the Terms

Organizations maintain an average of over 125 SaaS applications, according to Gartner®. With those 125+ applications come 125+ different SaaS agreements between the software vendor and you, the customer. That’s enough bedtime reading to last a lifetime. 

Buried within that mountain of legalese are several critically important provisions that can impact your company data, productivity and bottom line. These provisions can be divided into three broad categories: commercial, service and data. In this article, we’ll examine all three, so you can ensure you’re approaching every vendor relationship with eyes wide open. 

Commercial provisions

The commercial provisions of a SaaS agreement cover a wide array of topics. Let’s start with the basics – when the agreement begins and when it ends.  

SaaS contract duration

Determining the start date of a contract can be more complicated than it might seem. Often the start date (or effective date) is the date the contract is signed; however, there can be many other actions or events that determine an effective date. Additional triggering events include activation of service, customer going live on the service, or installation of the service coupled with meeting some predetermined usage threshold. Some vendors may combine these events such that the contract effective date is the date of signature, while billing begins on deployment. 

Regardless of the methodology, it’s important to know the start date, as that’s fundamental to determining the contract end date. Organizations will want to be aware of the end date well in advance of its arrival, so that procurement teams are prepared to negotiate a new term with the same vendor, or there’s a plan in place for an alternative to address whatever use case originally led to the purchase of the app. 

SaaS renewals 

Most SaaS agreements are structured to automatically renew, and they require the customer to give notice if they intend to cancel. Typically, this notice must be provided no fewer than 30 days from the end date; however, some SaaS vendors require notice of 90 days or more. No one wants to get caught in a situation where they’re contractually obligated to renew a service they no longer wish to use. Staying on top of renewal dates can help you avoid this unpleasant situation. 


Price is the perhaps the most critical and obvious commercial provision in a SaaS agreement, and it can be calculated in a number of different ways. Three of the most common methods include: 

Billing for SaaS applications typically takes place monthly or annually. While monthly agreements provide more flexibility, annual agreements often come at a discount. 


Unfortunately, not every product lives up to expectations, and you may find yourself regretting a SaaS purchase when it’s not meeting your needs. Many SaaS agreements include a termination clause that gives customers the right to end the relationship prior to the contractual end date. Exercising this right often comes at a price, so this can be an important item to negotiate when entering into the agreement. 

Service provisions

Service provisions in a SaaS agreement detail the vendor’s obligations regarding the performance of the product and the support the vendor will provide to the customer. 

Service-level agreement (SLA)

The SLA clause commits the vendor to meeting certain performance standards for the product. For example, uptime percentage is a critical component of an SLA. Obviously, when a SaaS product is down, it’s not providing any value to your organization, so uptime guarantees of 99% or more are typical. 

Other metrics in an SLA include maintenance, bug fixes and the penalties incurred by the vendor when they fail meet these requirements. 

Customer support 

SaaS applications often perform business-critical functions, so it’s important to know how the vendor will respond when you run into problems. Does the vendor provide comprehensive documentation detailing how to use the tool? Will you have access to support personnel, and, if so, on what timing? Making sure you have access to the appropriate level of support can determine whether your use of a SaaS application is a success or a failure for the organization. 

Data provisions

Data is the lifeblood of virtually every organization, and SaaS users routinely upload client data, intellectual property, and personal employee data to SaaS applications. Consequently, entrusting any SaaS vendor with something of such great value should be done with great care. Every SaaS agreement should provide details on data ownership, data storage and handling, and data access.  

Data ownership 

SaaS agreements should make clear that the SaaS vendor owns the software and the source code for the application, while the customer owns all data uploaded and developed using the application.   

Data storage and handling 

Due to privacy, security, and regulatory concerns, it’s important to know how and where a SaaS vendor stores your data. Is it in the cloud or a local data center? Does the geographic location of the storage facility comply with your country’s regulations? For example, storing the data of any EU citizen in the U.S. violates the General Data Protection Regulation (GDPR). Storing personal health information (PHI) is also subject to various regulations that differ depending on geography.  

The agreement should also describe how data is backed up, whether data is encrypted, and whether it’s shared with third parties. If data is shared with third parties, understanding the third party’s data storage and handling processes is equally important. 

Data access 

Finally, what happens to your data if you terminate the agreement with the vendor or if the vendor enters bankruptcy? Is there a defined process for retrieving your data and for making sure it doesn’t remain with the vendor? 

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