Software as a Service (SaaS) companies are known for their agility and innovation. A lot of this is driven by their ability to standardize complex things and deliver them at scale. In SaaS, we are constantly creating and delivering digital products and services that provide more and more value to customers, and trying to tie in the use of the latest technologies in our product iterations. However, the continued delivery of this does have a complexity that is associated with it. While delivering a more and more complex product that’s providing more value to a large set of customers SaaS companies must manage a wide range of legal issues that start to develop in their contracts.
One of the early things that SaaS companies look to do to keep their legal costs to the lowest level possible is use contract templates as they scale up with more and more customers served. Let’s have a look at the advantages and disadvantages of using contract templates for your SaaS startup.
What are the advantages of using a contract template?
-
Speeding up your workflow
Creating a contract from scratch can be a time-consuming process, especially when there are numerous variables to consider. When you’re just getting started in SaaS the use of contract templates that are pre-written and customizable will save a lot of manual work. This means that SaaS companies can save time and focus on other tasks like trying to close deals. Templates can also be updated and modified easily, which means that changes to legal requirements or business processes can be reflected quickly.
-
Consistency and Standardization are the goal of all SaaS processes
SaaS companies often work with a large number of customers, partners, and vendors. Scaling up when there is constant variation is hard. Using a contract MSA template helps ensure that all parties are subject to the same terms and conditions. This provides consistency and standardization across all contracts, which helps avoid confusion and misunderstandings. Additionally, using templates ensures that all legal requirements are met, reducing the risk of disputes or legal challenges. Even when you’re selling to enterprise customers who would like to push back during contract negotiations a template will allow you to have the majority of your terms as standard and you can track changes for each customer.
-
Risk Management
Contracts are an essential tool for managing risk in any business relationship. Contract templates can help outline and set rules around how legal agreements manage risks associated with selling a SaaS product. For example, a service level agreement (SLA) template can outline service availability, uptime, and response times, reducing the risk of service disruptions and customer dissatisfaction. By using a template for the same SLAs for each customer you can simplify your responses to any issues with your software. Similarly, a data processing agreement (DPA) template can outline data privacy and security requirements, reducing the risk of data breaches and regulatory non-compliance.
-
Increased Efficiency
Using contract templates can increase efficiency in the contract creation process and ultimately cut down on your costs for in-house or external legal teams. When a company has a library of pre-approved templates, employees can easily access and customize them. This can reduce the need for legal support or third-party assistance, which can lead to faster contract execution and improved operational efficiency.
-
Scalability
SaaS companies often experience rapid growth, and the number of contracts they manage can increase very quickly which will break all of your systems. Using contract templates can help ensure that the contract process has less variability and therefore it makes the process scalable. Templates can be modified and updated to reflect changing business requirements, and new templates can be created to accommodate new types of agreements. This helps ensure that the contract process and all of the things that the process influences, such as scaling invoicing and scaling renewals can keep pace with the company’s growth.
-
Improved Compliance
SaaS companies must comply with a range of legal and regulatory requirements, including data privacy, security, and intellectual property protection. Contract templates can help ensure that these requirements are met consistently across all contracts. This reduces the risk of regulatory non-compliance and helps protect the company’s reputation.
What are the disadvantages of using a contract template?
As a software as a service (SaaS) startup, using contract templates can be a valuable tool to help you simplify and speed up your contracting process, increase the efficiency of your legal teams, and improve compliance. This is especially important when you start selling to multiple jurisdictions. However, there are times when using a contract template may not be appropriate. Let’s discuss when you shouldn’t use a contract template for your SaaS company.
-
Complex or Unique Agreements
Contract templates are best suited for standardized agreements with common terms and conditions or at least when there are very few changes that are going to be made. However, some agreements may be more complex or unique, requiring customized terms and conditions that are not covered by a template. This is especially true for early-stage SaaS companies that are still working out what they are selling and how to sell it. In these cases, it may be more appropriate to work with a legal professional to draft a custom agreement that meets your specific needs.
-
High-Risk SaaS Agreements
Some agreements may involve higher risks, such as agreements that involve significant financial transactions, specific data that is being handled, or significant legal implications. A lot of enterprise customers who have a lot of measures in place to protect their data will fit into this group. In these cases, relying solely on a contract template may not be appropriate, and it may be necessary to engage with SaaS legal professionals to review and advise on the terms of the agreement.
-
New or Emerging Technologies
SaaS companies are more often than not working with new or emerging technologies that may not be covered by existing contract templates. When you’re dealing with the intellectual property of your SaaS agreements it’s important to not risk using a contract that isn’t made specifically for your business. In these cases, it may be necessary to work with legal professionals to develop new templates or customize existing ones to reflect the specific requirements of the technology.
-
Changes in the legal landscape for your industry
The legal landscape is constantly evolving, and new laws, regulations, and legal precedents can impact the terms and conditions of your contracts. In the world of technology, countries are getting more and and active in putting laws in place to deal with data privacy and taxation among a lot of other things. Using outdated templates that do not reflect these changes can expose your company to legal risks. In these cases, it may be necessary to engage with legal professionals to update your templates to ensure that they are compliant with current legal requirements.
-
Complex Jurisdictional Requirements
SaaS companies often operate in multiple jurisdictions, so growing your startup company in a separate geography can be a great strategy to grow quickly. Different jurisdictions may have different legal requirements that impact the terms and conditions of your contracts. It’s important to stay on top of these requirements and it may be necessary to engage with SaaS legal professionals who have expertise in the relevant jurisdictions to ensure that your contracts are compliant with local laws.
-
Strategic Agreements
Strategic agreements, such as partnerships, joint ventures, or software reseller agreements, might involve complex terms and conditions when it comes to all of the different outcomes in that relationship. Often they cannot be covered by a standard SaaS contract template. Usually, these types of agreements are not able to be covered by templates because they are so unique. More often than not it’s necessary to work with legal professionals to develop customized agreements that reflect the specific requirements of the partnership or joint venture.
Contract templates can be a great tool for SaaS companies, but there are times when they may not be appropriate. When you’re starting and trying to get your first customers across the line when you have very few resources, a lot of tech companies use templates. It’s a great way to move fast but you should be aware of the risks associated with not using a specific legal agreement and the common legal mistakes involved. Complex or unique agreements, high-risk agreements, new or emerging technologies, changes in the legal landscape, complex jurisdictional requirements (or just selling to a different country), and strategic agreements may all require customized terms and conditions that cannot be covered by a standard contract template. These are some of the most common times when it is essential to work with either in-house or external lawyers who have the expertise to develop customized agreements that meet your specific needs and protect your company’s interests. By doing this, you can reduce the risk of disputes and legal challenges and focus on delivering innovative products and services to your customers.
