SaaS contracting explained
Author5 min read Deal with Software or Data
The last couple of years has seen a shift from “on-prem” solutions to “cloud-based” solutions. The “object code” is no longer provided to the customer and the customer rather gets “remote access” to the software.
With this shift, the need for “alternative contracting methods” has arisen. In this article, we look at 2 of the more popular ways to contract within the SaaS space.
This business is owned by Johan and Jannus and is called the Virtual Agent. The Virtual Agent is a web application where a user can access online and facilitates and automates the credit vetting, onboarding and approval process for landlords.
The Virtual Agent focuses on business to business sales and each contract that is concluded with a new landlord differs from the previous one. Various aspects are negotiated with each landlord, for example, allowed users, term of the agreement, escalation rates, service levels etc.
A question that often arises with business owners starting up online businesses is - how do I bind someone to a contract who accesses my website?
When someone wants to sign up for software that is used as a service, must a contract be sent through to the customer who must then sign and return the contract? This approach is not practical and will likely result in lost sales.
There are other ways you can go about contracting more effectively with SaaS customers. The best way will depend on the SaaS that you are selling and the terms of the contract that will need to be variable.
If you are selling “packages” to customers and the only variable in the contract will be the particulars of the customer and the specific “package” that the user will subscribe to, a “clickwrap” contract will be your go-to.
With a clickwrap contract, the terms and conditions will usually be available on your website and accessible by following a link on your website.
Users enter into the contract without a “signature”. Usually, before the user proceeds to the payment page, a tickbox will appear that says something like: “By clicking ‘I agree’ below, you agree to the following terms.”
Clickwrap contracts are binding and they are an effective way to contract. Clickwrap contracts are, however, not suited for every type of SaaS transaction. With the example above, various terms are negotiated with each customer and there is no “one-size-fits-all” contract.
The Master SaaS Subscription Agreement will contain various provisions that are generally not negotiable. Examples of these are provisions relating to intellectual property, usage restrictions, termination rights, boilerplate provisions etc.
As with the clickwrap agreement, the Master SaaS Subscription Agreement is usually made available to the customer through a link on your website.
The Order Form sets out the user pricing, customization required, important dates, financial aspects etc. (in other words, all the variables that are usually negotiated with your customers).
The Order Form then incorporates the terms of the Master SaaS Subscription Agreement by way of reference. Incorporating “external terms” into an agreement is valid and binding (provided that the person is made aware of these additional terms that will apply to the transaction).
The above process will likely be an effective way for the example business to contract.
In addition to the above documents, we suggest that you also look at this article that discusses the various documents that you need to put in place when selling something online.
Monthly information regarding new legislation and contract updates.