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Everything You Need to Know About a SaaS License

If you are a business, setting up a SaaS license agreement can feel overwhelming. It can be difficult to wrap your head around all the disclosures and how complex components should come together to protect your business.

Don’t worry, that’s what we’re here for! In the post below, we’ll take you through all the basics.

We’ll go through the different components of a SaaS contract, and show you how to manage your own SaaS license agreements.

SaaS License example

What is a SaaS license?

A SaaS license is an agreement between a user and a software provider that allows the user to access and use the provider’s software on a subscription basis under certain terms and conditions. This type of license is commonly used in the SaaS industry, as it allows users to use software in exchange for a monthly fee, without having to purchase and maintain their own hardware and software infrastructure.

The key features of a SaaS license agreement include:

  • access to software,
  • user permissions,
  • payment structure,
  • restrictions on use and modification,
  • warranties,
  • support and maintenance,
  • termination of the agreement, and more.

Under this scenario, businesses using this model need to use specific contracts to support their subscription model and determine the terms on which users can use the software according to the terms of their subscription.

What is the difference between SaaS and software license?

The main difference between a license and SaaS (Software as a Service) is how customers use and pay for the software. With a license, they buy the software once and install it on their own device. The client owns that copy, but you’re responsible for updating and maintaining it. In contrast, SaaS gives customers access to software through the internet. They usually pay a monthly or yearly fee. The service provider takes care of updates and maintenance, so they don’t have to worry about it. Think of a license like buying a car, and SaaS like renting a car with a full-service package.

What are the benefits of SaaS licensing?

The benefits of SaaS (Software as a Service) licensing are many.

  • First, users don’t need to install anything on their devices; they use the software online. This makes it easy to get started.
  • Second, updates happen automatically, so customers always have the newest features without doing any extra work.
  • Third, SaaS usually costs less upfront because customers pay a monthly or yearly fee instead of buying the software outright.
  • Fourth, a customer can access the software from anywhere with an internet connection, giving them the freedom to work on the go.
  • Lastly, the SaaS provider handles all the technical stuff like security and maintenance, so clients can focus on your work, not fixing software problems.

What Are Some Examples of SaaS?

Software as a Service (SaaS) is everywhere these days, and you might be using some of these services without even realizing it. Here are some common SaaS examples:

  • Google Workspace (formerly G Suite): Offers tools like Gmail, Google Drive, and Google Docs, all accessible via the cloud.
  • Microsoft 365: Provides access to Microsoft Office tools like Word, Excel, and PowerPoint, as well as other productivity services over the internet.
  • Zoom: A video conferencing tool used for virtual meetings and webinars.
  • Salesforce: A customer relationship management (CRM) tool that helps businesses manage sales, customer service, and marketing.
  • Shopify: An e-commerce platform that helps you build and manage an online store.
  • Adobe Creative Cloud: Offers online access to software like Photoshop, Illustrator, and Premiere Pro for design and media editing.
  • Mailchimp: An email marketing platform that allows you to send newsletters, manage subscriber lists, and track campaign performance.

These SaaS platforms are generally subscription-based, meaning you pay a regular fee to use them, and they are accessible from any device with an internet connection.

What Are the Pricing Models of SaaS?

SaaS companies use different pricing models to fit different budgets and needs. From freemium plans that offer basic services for free to customized enterprise solutions. Here are some of the most common pricing models you’ll encounter in the world of SaaS:

  • Freemium: In this model, you can use a basic version of the software for free, but premium features require payment. For example, the free version might have limited storage or fewer functionalities.
  • Subscription: This is one of the most common models. You pay a regular fee (monthly or yearly) to use the software. Prices can vary based on the features you want and the number of users.
  • Pay-As-You-Go: Also known as usage-based pricing, you pay based on how much you use the service. For example, cloud storage services might charge based on the amount of data stored.
  • Tiered Pricing: The SaaS provider offers different packages with varying levels of features and capabilities. The more features you want, the higher the price.
  • Per User Pricing: The cost is based on the number of users who will be using the service. This is common for team collaboration tools like Slack.
  • One-Time Payment: Some SaaS platforms might offer the option to make a one-time payment for lifetime access. This is less common but can be found in some specialized software.
  • Free Trial: Many SaaS companies offer a free trial period so you can test the software before committing. After the trial period, you’ll need to choose a paid plan to continue using the service.
  • Custom Pricing: For enterprise-level services, the pricing is often customized based on the specific needs of the business. Features, users, and levels of customer support can all be tailored, and the price is negotiated accordingly.
  • Add-ons: Some SaaS platforms offer optional add-ons at an additional cost. These can include extra features, more storage, or specialized customer support.
  • License-based: Less common in SaaS, but some providers may charge an initial license fee along with a reduced monthly or annual subscription fee.

These SaaS platforms are generally subscription-based, meaning you pay a regular fee to use them, and they are accessible from any device with an internet connection.

Common FAQs: Your Questions About SaaS, Answered

If you’re a business owner looking to leverage Software as a Service (SaaS) for your operations, you probably have a lot of questions. Here are the most frequently asked questions that business owners like you have about SaaS, aiming to provide and clarify all the information you need to make the best SaaS licensing choices for your business.

Do you need a license to use SaaS?

No, as a customer or user, you don’t need a separate license to use Software as a Service (SaaS). Instead of buying a license, you usually pay a monthly or yearly subscription fee to access the software online. The subscription includes the right to use the software and often comes with updates and customer support. So, you’re not purchasing the software; you’re renting it for as long as you keep paying the subscription fee.

As a SaaS (Software as a Service) provider, you don’t need to issue traditional software licenses to your users. Instead, users agree to your terms and conditions when they sign up and pay a subscription fee for continued access. This is why having a well-crafted terms and conditions document is crucial, it serves as the legal agreement between you and your users. This document outlines what you provide, what you expect from users, and how you handle things like security and updates.

Is software licensing a SaaS?

No, software licensing and Software as a Service (SaaS) are not the same thing. Software licensing usually involves buying a license to use a specific version of a software product. Once users buy it, they can use it for as long as they want, but they may need to pay extra for updates. On the other hand, SaaS gives access to software over the internet, usually for a monthly or yearly fee. With SaaS, customers don’t own the software; instead, they rent it, and updates are typically included in the price.

Is Netflix a SaaS?

No, Netflix is not a SaaS (Software as a Service). While both SaaS and Netflix let you use a service by paying a monthly fee, they serve different purposes. SaaS provides software tools for businesses or individuals over the internet. Examples include email services like Gmail or business tools like Microsoft Office 365. On the other hand, Netflix is a streaming service that lets you watch movies and TV shows. You pay to access content, not software tools. So, Netflix falls under the category of ‘Streaming as a Service,’ not SaaS.

The purpose of a SaaS contract

As mentioned above, the purpose of a SaaS contract is to govern the terms of use and limitations of liability for a Software as a Service (SaaS) offering. In simple terms, a SaaS contract outlines the agreement between the provider of the SaaS application and the end user.

By setting out these terms in a formal document or agreement, the supplier can protect its intellectual property rights, and the end user can be assured of the quality and reliability of the service they are receiving.

💡 Remember, a well-drafted SaaS contract is essential for both parties, as it clarifies the mutual expectations and responsibilities, and helps to reduce the risk of disputes or ambiguities down the line.

📌 What does a SaaS license agreement include?

An SaaS License agreement between the provider and the end user will have specific needs and therefore different clauses that may vary according to the industry, product, or service.

However, all service agreements typically include a number of key components, including but not limited to:

  • Scope of the license: This section specifies the authorized use of the software, including the number of users, devices, and locations allowed
  • Pricing and payment terms: The agreement will outline the subscription fee or pricing structure and other charges. It may also cover payment methods, renewal options, and cancellation policies.
  • Data security and confidentiality provisions: This section describes how the provider will protect your data, as well as any restrictions on sharing or using your data.
  • Restrictions on use, transfer, or modification: The agreement may outline any limitations on how you can use the software, as well as any restrictions on transferring or modifying the software.
  • Warranties, support, and maintenance: The agreement may specify any warranties, service level agreements, or other guarantees related to the software.
  • Termination of the agreement: This section describes how the agreement can be terminated, including reasons for termination and any required notice periods.

📌 Consequences of not having a proper SaaS licence

Failing to have a proper SaaS license agreement can have serious consequences for both providers and users.

👉 For providers, it can result in legal liabilities and financial costs, for example, if users violate the terms of use or misuse the software. Additionally, lacking a clear agreement can lead to misunderstandings, disputes, and even legal action, which can be costly and demanding.

Without a proper license agreement in place, there is also a risk of data and security breaches that could compromise sensitive and personal information.

💡 Remember, it’s crucial for providers to always ensure that they have a comprehensive and legally binding SaaS license agreement in place to protect their interests and avoid legal disputes.

📌 How to create a SaaS licence agreement

Creating a SaaS license agreement may seem like a daunting task, but it doesn’t have to be, and besides that, it requires a lot of care.

The first step is to identify the key points you want to include in the agreement, such as:

  • Scope of the license
  • Pricing and payment terms
  • Data security and confidentiality provisions
  • Restrictions on use and modification
  • Warranties
  • Support and maintenance
  • Termination of the agreement
  • Dispute resolution
  • Governing law

This may involve consulting with legal experts or using a generator to ensure that your agreement is comprehensive and legally binding.

This last option is often very popular, as you can customize the creation of your agreement based on your specific needs and requirements without the high fees of using a lawyer.

👉 To use a generator, you will typically need to answer a series of questions about your company and the software you provide, and select and add clauses that you can customize according to your individual scenario, to generate a tailored agreement that covers all the necessary terms and conditions, including clauses related to the license of the software, disclaimers of warranties, limitations of liability, and indemnity, among many other aspects.

Once the agreement is customized and generated, you will get a document that covers your specific needs and complies with all relevant laws and regulations easily and usually with the option to have it available in multiple languages if required.

How iubenda can help

Our Terms and Conditions Generator is equipped with clauses that are specifically crafted to help software providers disclose in a legally binding way how their software can be used. The scenarios covered include, among others:

  • ✅ Clauses related to the license of the software,
  • ✅ Disclaimers of warranties,
  • ✅ Limitations of liability and indemnity

It comes with:

  • guided set-up;
  • hundreds of possible personalizations;
  • legislation monitoring;
  • pre-defined scenarios: buildable text modules also for marketplace, affiliate programs, copyright, eCommerce, mobile, and more.

🚀 The solution is optimized for complex scenarios like SaaS and drafted by an international legal team, available in 11 languages, and up-to-date with the main international legislations.

🚀 Getting started is easy: simply create a free account, activate the Terms and Conditions within the dashboard, and start generating.

Add your software-specific clauses now!

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The solution to draft, update and maintain your Terms and Conditions. Optimised for eCommerce, marketplace, SaaS, apps & more.