20 key points in SaaS Contracts - Part 1

While writing these two parts regarding SaaS contracts I assume that you know how SaaS works for mid-market as well as enterprise customers. It is not mandatory to have a SaaS background but it helps to understand the terms better. These two posts are written to help anyone who wishes to know more about SaaS contracts, writes contracts or speaks/ negotiates with a customer regarding SaaS contracts. If you are a SaaS professional and/ or a sales person, knowing about these contractual points helps you do your job better and grow in your career. 

Let's start with 10 points in this part and part 2 will have the next 10 points. Part 1 mentions details about fees, hosting, term, uptime, services, SOW and more. 

1 - SaaS Fees - The contract must have a saas fee which means how much is being charged to a customer. This can be monthly, quarterly or Annually. Sticker price/ ticket price will not be considered here. This is the final price which the customer has agreed to pay. If you are an enterprise product and are innovating with releases quarter over quarter it is good to add an annual innovation fee. This can be 3-5% of the Annual fee (ARR for you). 

2 - Contract Terms - The term of the contract is mentioned here. SaaS contracts are 1 year, 3 years or 5 years. It is advisable to have an at least 1 year contract. Many SaaS companies do not entertain customers who are looking for less than a year for a contract.

If you are a decade old product you should push for 5 years contract. Worked well for me … 👍 

3 - Hosting Facility - SaaS products are hosted on cloud (AWS, GCP, Azure, etc.). In case of clouds it is important to write in the contract where the facility is hosted, the city and the country of it. This is important for data privacy as well. If there are specific requirements such as hybrid cloud then those also should be added as part of the contract. 

4 - Uptime - In most cases, the customers use SaaS products and over the years they become a critical part of the customer business flow. Because of this most of the customers expect that the uptime is added in the contract. Examples of uptime can be 99.5% or 99.9% uptime. The uptime is calculated as the maximum number of hours per month the system can be unavailable; but not more than that. There are tools which can be added into the SaaS products which continue to track the uptime of the software. Customers expect that the uptime notifications are also being sent to them frequently. This can get very serious if the consequence of the SaaS being down can cost the customer in terms of dollar amount, brand reputation or customer satisfaction … 🏆 

5 - Production and staging environments - Some of the customers expect to have a staging environment available for them. This can come at an extra cost and it should be added into the SaaS fees. The staging environments are a replica of the production environment except the minor newly work in progress changes. 

6 - Feature Releases - Every Saas platform gets updated quarterly or monthly. These updates can be product/ feature updates. Most of the time these updates can also be stability and maintenance updates as well. Customers are not concerned about these as long as the system keeps functioning well on ongoing bases and they are communicated about these … 🫖 

7 - Services, Configuration Fees - Many customers have ecosystems which are unique in nature. These demand certain specific configurations, minor custom work. SaaS companies can charge for these either as services or configuration fees. These are different from professional services which are generally charged by the hour/ personnel who is an expert. Some saas companies also follow an annual credit system which allows their customers to use the credits for these.  

8 - Scope of work - A detailed scope of work (SOW) is added into the SaaS contract. If your SOWs are very extensive with hundreds of line items in it, a SOW score can also be created post contract which helps in managing the customer relationship better. SOW makes sure that all of the customer use cases are covered with the Saas, milestones are met and appropriate hand-offs happen once the Saas platform goes live. 

9 - Quality expectations - A lot of customers suggest that they get this added into the contract so it makes them more confident about the Saas platform. Think about it as an example - the system is working but the transaction is not going through. In this case, the quality for the customer user suffered and they had an impact on the business. If the customer is keen on this, they may also ask to add a penalty for these … 💰  

10 - Team Roles and Responsibilities - Who will work on both sides? Who is the sponsor? Who are managers, advocates? Do we need help from IT teams to go live? Bringing all relevant team members from both sides is important to move forward. Everyone should be onboard with appropriate and agreed on roles and responsibilities. If the teams are bigger, usually there are charters where all these details are mentioned. 

The goal of every contract is to reach an amicable agreement between the customer and Saas partner. Both are expected to do business for the long run with the software solving all of the use cases for the customer and providing them the needed value. The value can be in terms of productivity, saving money or similar. 

Contracts play a very important role in growing and scaling. Long term contracts help Saas companies build revenue predictability, innovate over years, reduce operational burden and become sustainable. Hope this helps you grow and scale … 🏍️    

Swagat Irsale is a Growth and Scale Advocate. He works with start ups and scale ups and helps them grow revenue and build enterprise products which users use.

You can connect with him on Linkedin.

https://www.groadv.com/post/grow-revenue-the-journey-zero-to-one-billion-swagat-irsale

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