Unlocking Value: 10 Tips for Negotiating Your SaaS Agreement

Negotiating a SaaS agreement? EM³ Law shares 10 key contract terms to help protect your business and maximize value.

Don’t just accept the first price quoted from your vendor. Most vendors are willing to negotiate to some degree, so don’t be afraid to request discounts for paying annually and escalation caps on future increases, and make sure to take advantage of any other offers, such as free trials and introductory offers.

You should also ask for a moratorium on subscription fees during any customization and development phases prior to moving to production.

Be sure to understand how your agreement may be terminated and the parties’ post-termination rights and obligations, in case things don’t work out between you and the vendor.

If a termination clause isn’t included in the agreement, then it’s important to make sure one is negotiated before signing to address a number of issues, including post-termination items, such as data migration assistance, ownership of intellectual property, and destruction of customer data.

Security is vital when dealing with software services, so make sure that your vendor’s security measures meet industry standards or even exceed them in order to protect your business against any potential threats and liabilities to third parties.

Asking questions about security measures taken by the vendor will help you understand their approach and whether they’re willing to take extra steps and invest for better protection.

Make sure you understand what level of support is included in your agreement and who provides technical support (for example, onshore vs offshore), if needed.

Vendors typically tier their service offerings based on the specific issues and levels of urgency, so it’s important to negotiate these provisions in detail to address, for example, emergency 24/7 live help in certain circumstances such as for data recovery or system errors.

Also investigate what maintenance services are included (and what services are conspicuously excluded); knowing whether any upgrades, such as patches or bug fixes need to be developed (and the vendor’s standard update schedule), should also be taken into consideration when negotiating this part of the agreement.

Understand exactly how many users have access rights under your license agreement and the process and cost for adding users, so if more are needed in the future, the costs are known upfront.

Additionally, it’s important to check whether customizations are allowed if needed—this would generally fall under ‘API Access’—but double check the vendor’s standard terms and don’t hesitate to request terms that are required to meet your business needs, such as terms about transferring intellectual property ownership of modifications made later down-the-line.

The processes involved when setting up a license and renewing it annually need to be outlined clearly, including specifying the party responsible for completing required documentation (the customer or vendor) and the timeline for renewal notices.

Additionally, outlining any automatic renewal process ahead of time avoids confusion at the end of a license term and ensures you have ample opportunity to negotiate updated terms at renewal time.

It’s important that customers understand how their data will be used and stored by the vendor during their time working together, so as part of negotiations, make sure this information is outlined clearly within any SaaS agreement entered into—this includes establishing clear parameters related to the use of customer data for software improvements, as well as actions to be taken by the vendor in the event of a breach in security.

Please note that these terms often trigger compliance concerns, including with a customer’s regulators and in relation to its cybersecurity insurance policies.

For customers looking for something tailored specifically to them—be it integration with existing systems or even branding customization opportunities—these should all be part of the negotiation process prior to signing off on a SaaS agreement.

Not only does this open doors when wanting flexibility from a service provider, but it also ensures that you have control over how services being offered ‘fit’ into your business’ existing infrastructure.

These opportunities also go a long way toward taking a cost center SaaS arrangement needed to support a business and converting it into an organization’s strategic advantage in the marketplace.

Once again, customer rights under the agreement play an important role within negotiations—especially when looking at clauses related to audit rights—so make sure the audit terms (including who owns records after completion of an audit and who pays for periodic audits) are scoped and properly agreed upon prior to signing an agreement.

These terms are important to ensure that the objectives for audits are met while your business is being adequately safeguarded against liabilities for the information being shared.

Last but certainly not least, payment terms must be adequately outlined prior to entering into an agreement with a SaaS vendor.

We customarily suggest having payment due dates and invoice dispute processes clearly stated, along with acceptable payment methods, so that everyone has clear expectations and any surprises later down-the-line, including unexpected suspension of services due to non-payment of invoices, are avoided.

Ultimately, choosing the right SaaS provider involves vetting all available options of the agreement terms thoroughly beforehand. Including the items mentioned above will ensure that each SaaS agreement is an arrangement that is value added back into your business through a well-vetted working partnership with your technology vendors.

Maxson Mago & Macaulay, LLP, or EM³ Law LLP, is a minority-owned, full-service law firm, providing Fortune 500 companies assistance with negotiating SaaS agreements to help our clients receive the best terms possible.

Our team of experienced lawyers have deep industry knowledge and a track record of success, having negotiated thousands of SaaS agreements for leading companies across a variety of industries, including financial services, healthcare, hospitality, consumer products, and technology.

We understand that every agreement is unique with its own nuances, and we strive to craft solutions tailored to each client’s specific needs and goals. With more than 60 years of experience in complex technology contract negotiations, our team can equip your business with the tools necessary to succeed.

For more information, please contact Ajay Mago, Managing Partner, at amago@em3law.com.

Ajay Mago

Ajay Mago is a former AmLaw 100 partner, with more than 16 years of experience in technology transactions, including at Jones Day, Mayer Brown, and Duane Morris. Mr. Mago advises on a wide array of sourcing, technology and other commercial transactions and helps companies navigate legal issues raised by data, emerging technologies, and digital transformation, both on the buyer and provider side. He routinely advises clients on IP strategy, management, and monetization arrangements, leveraging his technology background and business experience.