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Best Practices for SaaS Contracts & Agreements

best practices saas contract

Adopting best practices for SaaS contracts – including negotiating, maintaining, and managing contracts for SaaS applications – presents technology leaders with a challenge and an opportunity.

The challenge lies in the task of discovering and identifying contracts, gleaning key details to empower SaaS management, and documenting these details.

The opportunity in managing SaaS contracts draws from the challenge: Once these details are stored in a SaaS management platform or other record-keeping systems, they empower a holistic view of cloud-based software. This view, in turn, enables new software management capabilities, avenues for cost containment, and leverage for improved return on investment in SaaS.

Best Practice #1: Bring SaaS Agreement & Contract Details to the Surface

Identifying all current SaaS applications in use and their respective contracts represents the fundamental first step toward optimizing the management of SaaS contracts.

Why is it important? You can’t manage (or optimize) contract details without establishing visibility first. At Zylo, we find that clients typically underestimate the number of SaaS applications within their environment by two to three times. An enterprise business maintains about 664 SaaS applications on average. This means about 200 to 300 applications typically remain undiscovered.

When undiscovered, every application carries a potentially binding contract or user agreement that sets forth conditions such as terms of use, start and end dates, license quantity, data handling conditions, and renewal details. Without a transparent accounting of each application’s contract content, it’s nearly impossible to begin optimizing contract details for maximum value.

Tracking applications, procurement records, CASBs, or manual tracking via financial reconciliation can all reveal SaaS applications in use, which creates the ability to begin tracking down contract details. A SaaS discovery and management platform, such as Zylo, establishes the ability to discover, identify, and document contract details for each application.

This ability creates cross-functional collaboration to prioritize key and growing applications in the business. This allows for procurement to optimize pricing, security to properly vet the risk, and legal negotiate the terms that are best for the company.

RELATED: How the Zylo Discovery Engine discovers SaaS applications at near 100-percent accuracy

Best Practice #2: Click-through SaaS License Agreements vs. Enterprise Contracts

About one-sixth of all employees purchase SaaS applications for business use in any given organization. And these purchases (typically accounted for through expense reimbursement requests), create approximately 50% of all SaaS applications in enterprise IT environments.

The difference between an agreement for an employee-purchased application and a negotiated, vetted contract underscores the importance of reviewing and surfacing all SaaS application agreement details.

When it comes to contract optimization, an employee-acquired application is not only more likely to exist as shadow IT (an application that’s unknown to IT), it’s also more likely to rely on a click-through license agreement. While a click-through is not necessarily problematic in and of itself, it doesn’t offer the protections as a negotiated enterprise contract for the same application.

Here are a few reasons why enterprise contracts can provide additional value:

  • Click-through terms are enforceable. A single employee’s agreement shouldn’t dictate terms for an entire company, but an organization as a whole may be beholden to click-through terms if and when an employee agrees to terms for a business-use application.
  • Enterprise contracts consolidate buying power. If and when multiple instances of employee-acquired SaaS applications exist in an environment, merging them under the buying power of an enterprise-grade application with multiple seats can create significant savings versus discrete employee-led purchases. Prices can also be negotiated.
  • Click-through terms favor the vendor. Since a SaaS click-through agreement is usually the vendor-supplied default agreement for the application, it’s a safe assumption that the conditions generally favor the SaaS vendor.
  • Enterprise SaaS agreements provide compliance & security protections. Along with price breaks, negotiating an enterprise license agreement afford other protections and security not available in click-through agreements. For instance, organizations concerned with complying with privacy regulations such as GDPR can add clauses that outline the management, retention, or deletion of PII, PCI or other customer data within SaaS applications.

Best Practice #3: Document Contract Details in a System of Record

Once all SaaS applications in use have been made visible using a discovery process, documenting each application’s contract or agreement details in an easily accessible system of record is the next logical step.

For many organizations, this system of record may exist as a manual spreadsheet, a contract management system, or some other form of digital document storage and retrieval system.

According to Business Law Today, approximately 95% of all businesses manage contracts manually. Advantages of using a system of record to store contract details include the ability to search by vendor name or application type, the ability to quickly locate pertinent information without the need to rescanning or rereading whole contracts, and the ability to compare contract details from multiple contracts.

What to Look for When Evaluating SaaS Contracts

What content is most important when documenting and storing SaaS application contract details? Consider the following checklist:

Contract Review Checklist for SaaS Applications: 

  • Application category and intended function
  • Application ownership
    • Business unit
    • Contract owner
  • Length of term
    • Contract start date
    • Contract end date
    • Renewal date
    • Automatic renewal terms
      • Required non-renewal notification length
      • Cancellation policy
      • Required notification method
  • Total contract value
    • Platform fees
    • Implementation fees
    • Billing frequency
    • Payment method
  • Billable consumption metrics such as storage caps, envelopes, or contact list sizes
  • Total licenses
    • Per-user license fees
    • Total purchased
    • Planned future purchases
  • Specific product, service or feature descriptions for multiple order form contracts
  • Details regarding compliance with consumer protection, data, or privacy regulations such as GDPR

Empowering Effective SaaS Contract Management

For its customers, Zylo offers contract content metadata scraping, line-item data selection, and record-keeping for every SaaS application agreement or contract. A technology manager can send any cloud software or SaaS contract for metadata scraping. Once received, Zylo’s contract review system automatically finds all contract details (including every item listed in the contract review checklist, if present), then loads the information into the application’s profile in the Zylo SaaS management platform. This level of granularity allows organizations to progress towards more accurate utilization by specific license types, cost-per employee metrics, and build a robust product catalog.

With all contract details now centrally located, technology managers can collaborate with business units and application owners to leverage fully revealed contract details for value improvements.

For example, multiple single employee-owned instances of a SaaS application could be consolidated into an enterprise agreement (with bolstered benefits from a negotiated contract). This view also enables an end-to-end view of every application from its starting point in contract details to the actual real-world usage metrics created by end-users.

Another enablement created by centrally stored details is a calendar for contract renewal dates and notification periods. Within Zylo’s SaaS management platform, every renewal data and notification period can be added to a renewal calendar with alerts to prevent unintended automatic renewals.

Effectively managing SaaS contracts and agreements – and the terms they denote – is a cornerstone to any SaaS management strategy. With clear visibility into SaaS applications and their related contract details, technology managers can create opportunities for improved value and increased productivity.

For more insights on how to tackle and win at your renewals, visit our SaaS Renewal Management Resource Center.

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