What is a SaaS contract and how to understand and manage SaaS agreements

You’ve done your SaaS app research, shortlisted your options, made your final decision and now it’s time to negotiate the SaaS contract. Buying a SaaS app requires understanding the complex world of SaaS agreements and contracts—where software licensing meets service excellence. Unlike traditional agreements, SaaS contracts blend software delivery over the internet with a focus on seamless access, subscription-based pricing, continuous updates, strong vendor relationships, and top-notch performance. 

In this article, we’ll explore:  

• What is a SaaS agreement  
• Key clauses to expect in a SaaS contract  
• Universal provisions in every service contract  
• Common pitfalls to watch out for  
• Pro tips for crafting winning SaaS agreements  

Ready to unlock the secrets to mastering SaaS contracts? Let’s start by defining SaaS agreements.

What is a SaaS contract agreement? 

A SaaS agreement is a legally binding contract that governs the relationship between a SaaS vendor and a customer. The agreement covers all aspects of the service including software and services definitions, terms, responsibilities, and expectations for both parties. 

Unlike locally installed software, users engage with SaaS apps via the internet. The apps themselves are built on servers hosted in a data center, along with the data they store. In the SaaS model, organizations benefit from a continual stream of new releases and updates, ensuring use of cutting-edge software without the hassles of managing hardware. 

This is precisely what makes a SaaS agreement unique – your contract must cover a lot of ground to adequately protect both parties.

12 common SaaS agreement provisions related to the app

As a general rule, if your SaaS agreement doesn’t specifically state it covers a certain aspect of the service, then you can assume that it’s not included within your contract scope. 

That said, regardless of the app you’re planning to add to your stack, SaaS contract agreements share some common components. They include:

1. SaaS service description

This first provision lays out a clear definition of the services provided, including the scope of the software, what features are accessible for your use, and the limitations you’re subject to, like user license numbers or storage capacity. It should state if the service includes updates and maintenance. And it should contain the support levels your organization is entitled to.

Why it’s important: Ensures both parties understand what is being delivered and sets expectations for functionality.

2. SaaS user licenses and restrictions

This clause will specify the number of authorized and licensed users, and any usage restrictions. For instance, it might prohibit credential sharing for a license and license transferability.

Why it’s important: Prevents misuse of the software and clarifies usage rights.

3. Subscription type and payment

This clause specifies pricing. For instance, it’ll state how you’re charged, which tier, and whether payment is annual, quarterly, monthly, or usage-based.

It will also state terms and detail setup fees, overage costs, currency, and whether payment is upfront or recurring. A well-done SaaS agreement also spells out billing cycles, invoicing, and any penalties for late payments.

Why it’s important: Clarifies financial obligations and prevents disputes over costs.

4. Term, termination, and renewals

SaaS agreements should define the duration of service, like whether its annual or month-to-month, as well as renewal and termination conditions. This is where the customer needs to note and track the notice period for cancellation. 

As for renewals, this is where you can find auto-renewal clauses. Generally, a SaaS agreement will be renewed automatically for another term, unless a customer actively terminates their agreement before an established date.

In the event of termination or cancellation, it should cover what happens to your data upon termination and your options for data export and deletion. 

For the SaaS vendor’s protection, it will have language for termination in the event of non-payment or user access violations.

Why it’s important: Defines the commitment period and contract exit, thereby protecting both the customer and the vendor.

5. Data ownership and portability

In this important SaaS agreement clause, it should clearly state aspects of customer’s data ownership, like:

• The customer owns its data, and corresponding intellectual property rights related to it 
• Prompt data access without charge upon demand
• Unconditional and immediate data portability or migration rights upon service termination, even in the event of non-payment
• Customer data return formats and methods
• Data locations
• Data destruction on all SaaS vendor infrastructure upon completion of data porting
• SaaS vendor prohibition from aggregating and reselling customer data to third parties
• SaaS vendor’s ability to analyze customer data for usage trends or roadmap decisions

Why it’s important: Establishes customer and vendor ownership rights to data stored in a platform or SaaS app.

6. Data retention 

SaaS providers generally retain customer data for a very short time frame. SaaS agreements should address your specific data retention concerns. Not only should it specify the retention period, metadata retention, and any associated costs, it should include a process for any litigation holds that may arise.

In addition, a SaaS agreement addresses both Recovery Time Objectives (RTO) and Recovery Point Objectives (RPO). Varying depending on the mission-criticality of a given SaaS app, these define how long it will take to recover data and resume using an application that has gone down, as well as data freshness at recovery time. 

Why it’s important: Defines the commitment and expectations for customer data retention.

7. Data privacy and compliance

This provision specifies the security standards a given SaaS vendor adheres to.  It should lay out its compliance with data protection laws, like SOC2, PCIA, or GDPR. You should know when compliance certifications expire, and track certification validity.

Why it’s important: Ensures compliance with legal requirements for both parties.

8. Backup and disaster recovery

Disaster recovery-related SaaS agreement clauses address incidents like bankruptcy, major equipment failure, or in the event of force majeure such as a natural disaster and power outages. Called a disaster recovery plan, it includes application redundancy, application availability in the event of a failure of the primary server or application, backup processes, offsite data storage, as well as the backup retention duration. 

Why it’s important: Establishes vendor responsibility for data protection.

9. SaaS data security

A SaaS agreement should cover the four pillars of SaaS security: physical security, technical security, administrative security, and incident and breach response.

Physical security at SaaS vendor data centers: This includes physical access restrictions, personnel background checks, appropriate badging, and training.

Technical security: A SaaS agreement should specify hardware, software, and encryption that a SaaS vendor uses. This includes data encryption standards for data both at rest and in transit, intrusion protection (IdP), virus and malware detection, VPNs, and firewalls.  In addition, it should state that the vendor will provide detailed reports for any attempted intrusions of material significance as well as any resulting data breaches. Next, it should include storage requirements for credentials and passwords and strong access controls. Finally, the agreement should address other typical security controls, such as staff screening, access logs and third-party contractor access. 

Administrative security: SaaS agreement needs to include management operational controls and procedures implemented to protect the system’s security. This includes authentication of HTTP clients, SSL transport use, authentication protocols and other key processes.

Security incident and breach response: A SaaS agreement defines “data breach,” to establish the scope of each party’s obligations and liabilities. It also lays out suspected data breach notification requirements, speed of notification, communication methods, actions and progress that remedy the breach. 

Finally, the SaaS agreement should clearly outline responsibilities for complying with all applicable federal, state, and local data breach notification laws, specifying which party is responsible for preparing and sending notices to affected individuals, covering associated costs, and identifying any expenses the responsible party must pay. The agreement should clarify which party pays the costs of complying with any new laws enacted after the agreement is signed.

Why it’s important: Establishes strong mutual trust and limits SaaS security risk for both parties.

10. Service Level Agreement (SLA)

All SaaS agreements contain objective service performance standards in the form of SLAs. These detail metrics for successful SaaS app service and they’re usually tailored to the SaaS app itself. Common service level metrics include:

• Application availability like 99.9% uptime
• Network availability
• Downtime remedies, like service credits or financial penalties
• Escalation procedures, including status reporting
• Data return (Recovery Time/Recovery Point Objectives)
• Simultaneous users
• Page response times
• Maintenance schedules

Why it’s important: Outlines mutual expectations for performance, reliability, and support to ensure accountability.

11. Support and maintenance

SaaS contracts and agreements include details on technical support like hours, and communications channels, including phone, email or chat. They also have time to respond, time to resolve, and maintenance schedules. SaaS agreements should specify service levels, like platinum support or gold level support, and what support is included and what’s available at an additional cost.

Why it’s important:  Ensures customers know how to get help and when updates occur.

12. Acceptable Use Policy (AUP)

All SaaS agreements will contain rules for using the service. These would include prohibitions on illegal activities or spamming. It also includes introducing any content into a SaaS app that may damage or interfere with services including viruses, Trojan horses, worms, and time bombs. It could also include prohibiting manual or electronic means to avoid any use limitations placed on the SaaS provider infrastructure, such as access and storage restrictions.

Why it’s important:  Prevents service abuse and protects the SaaS vendor’s infrastructure.

7 general provisions found in most contracts

In addition to provisions related to the SaaS app and the services a vendor offers to a customer, you can expect your vendors to include some standard contract clauses. These provisions are commonly used when engaging with any new vendor, be it a consultant providing marketing services or a software vendor providing your SaaS management platform for IT automation.

Here are some standard contract clauses and the protections they provide:

• Intellectual property (IP) rights: to protect the provider’s IP while ensuring the customer’s right to use the service, clauses will specify that the provider retains ownership of the software and any associated IP. This clarifies that the customer is granted a limited, non-exclusive license to use the software.
• Confidentiality and non-disclosure terms: to safeguard sensitive information shared between parties, these clauses define what constitutes confidential information and duration of confidentiality. For example, customer data, proprietary software details, and obligations to protect it. 
• Warranties and disclaimers: to limit provider’s liability while setting realistic expectations, the contract agreement includes any warranties like services will perform as described and disclaimers (e.g., no guarantee of uninterrupted service or fitness for a specific purpose).
• Liability and indemnification: to manage legal and financial risks for both parties, a SaaS agreement will place limits on the provider’s liability for damages, including indirect or consequential damages. It will also include indemnification clauses to protect against third-party claims, like IP or license infringement.
• Force majeure: to protect both customers and vendors from liability for events outside their control, there will be clauses excusing performance delays due to unforeseen events (e.g., natural disasters, cyberattacks beyond reasonable control).
• Governing law and dispute resolution: to clarify legal recourse and reduce ambiguity in conflicts, contracts always specify the jurisdiction governing the agreement and the process for resolving disputes, like arbitration, mediation, or litigation.
• Modifications to the agreement: to enable flexibility for updates while ensuring transparency, a contract includes conditions under which the provider can modify terms, like 30 days’ written notice and how customers will be informed such as email or in-app notification.

9 potential SaaS agreement pitfalls to avoid

Now that you know all the possible contract provisions your next SaaS vendor could include, in this section, we explain some red flags and cautions you might spot in their SaaS contract agreement. 

To make sure you fully understand the consequences of these stumbling blocks, we also explain why you should do your best to prevent them.

1. Vague SLAs: Without well-defined uptime guarantees, response times, or remedies for service failures, unmet expectations and disputes can result.
2. Unclear data ownership and exit plans: Ambiguity about who owns data or migration strategies after termination can lead to vendor lock-in or data loss.
3. Lack of data privacy compliance: Know your compliance requirements, as non-compliance with data protection laws can lead to heavy fines and costly legal fees, especially for those in regulated industries.
4. Hidden fees or auto-renewals: Unclear pricing or automatic renewals without proper notice can frustrate customers and lead to disputes.
5. Unfair termination clauses: Punitive termination terms, like excessive notice periods or penalties, can alienate customers. Conversely, vague termination rights for SaaS vendors can lead to abuse and unknown risk.
6. Lack of clarity around contract modifications: Allowing a SaaS vendor to unilaterally change terms without notice may be challenged legally or reduce trust.
7. Poor consideration of future scalability needs: Agreements that don’t allow additional users or storage when a customer grows can force renegotiations or service disruptions.
8. Weak security and breach provisions: Failing to address data breach responsibilities can leave customers vulnerable and liable for expensive damages.
9. Ambiguous support terms: Vague support terms without quantifiable metrics aren’t great for customer satisfaction if support is slow or inadequate.

Tips for successful SaaS agreements and strong vendor relationships

You know what a SaaS agreement should contain, what to avoid in them, and now we’ll give you a few recommendations on how to make solid contracts that keep both the SaaS vendor and customer protected and satisfied.

Here’s what we suggest:

• Ensure that your SaaS vendors provide SaaS agreements written in clear, straightforward language to avoid misinterpretation and make it easy for non-technical stakeholders to understand
• Review the agreement for red flags like overly restrictive termination clauses, unclear data ownership, or weak SLAs
• After understanding a SaaS vendor’s security infrastructure and processes, incorporate your specific security requirements as a detailed, separate exhibit to the SaaS contract agreement
• Outline detailed breach notification timelines and responsibilities for mitigation
• Include flexible pricing tiers or scalability options in the event of unforeseen user license needs, both up and down
• Specify support hours, complete with response times for critical issues, and escalation procedures
• Negotiate terms, especially for enterprise-level subscriptions or mission-critical applications
• Have the SaaS agreement reviewed by legal counsel to ensure compliance with local laws and industry standards
• Use a unified SaaS management platform (SMP) like BetterCloud. 

Recognized as a Leader in the 2025 Gartner® Magic Quadrant™ for SaaS Management Platforms (SMP),  BetterCloud is capable of helping you automate data protection, secure file sharing, centralize SaaS contracts management, track licenses, store SaaS vendor compliance certifications and their expirations, and use automated tracking and alerting for vendor renewal or cancellation dates

Well-crafted SaaS agreements are good for both customers and vendors 

For both the provider and customer, a well-done agreement gets the SaaS vendor relationship off to the best start. It ensures clarity, fairness, and legal compliance. Key components include service details, payment terms, SLAs, data privacy, and termination conditions. 

They should avoid contract snags like vague terms, hidden fees, or inadequate data protections by being transparent and specific. For customers, carefully review the agreement before signing. 

Once your subscription is active, add your new app to your BetterCloud SaaS management platform to ensure efficient automation, management and security of all users, licenses, contracts, vendors, dollars, and files.

Ready to see how all-in-one SaaS management platform BetterCloud can help manage your SaaS contracts, vendors, and budgets? Join our next live demo, or speak with our team now.