SaaS Tips by Sapna | Tip No. 6 – Contract Term

Unlike on-premise software that can be licensed on a perpetual basis, SaaS contracts are for a specific term, usually between 1 to 5 years. Generally, during the term the contract provisions including the price do not change. When deciding on how long to sign on a customer for, consider how the service may evolve over the next few years, the committed revenue you’re expecting from the contract and how long you are comfortable with providing the service under the same conditions and price.

How long should your SaaS agreement contract term be?

Unlike on-prem software which is often licensed on a perpetual basis, your SaaS subscriptions are for a finite term. These can be as short as a month to as long as the parties are comfortable with.

Most SaaS contract terms fall between the 1 to 5 year time-frame.

Some things to consider when deciding how long to sign up to the SaaS for:

  • If this is a brand new service either to you or in the market, you will likely want as short a term as possible to test out the service before you take on a longer commitment.
  • If this is a critical application that is heavily integrated into your systems and processes, you would want a longer commitment from the supplier to ensure continuity.
  • You may commit to a long period to lock in pricing or favourable terms or to secure a discount from the supplier.
  • You may not want to sign on for too long a period – software changes, evolving all the time. There may be a better, shinier service on the market in a few years.

To learn more from the customer’s perspective and join in the discussion, check out my LinkedIn post.

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