How to Create Effective Contract Templates

As the software-as-a-service (SaaS) industry continues to grow, companies within the sector must prioritize the creation of robust contractual SaaS agreements with their customers and strong contract management processes internally. This not only helps to maintain clarity and coherence in the delivery of your product, but it also creates a great end-to-end experience with your customers and fosters trust between parties, thereby helping you to build your company’s reputation for new customers and making renewals easier. Here, we will focus on four pivotal customer contract templates that a SaaS company should create and have on hand for their sales and legal teams: sales contracts, Non-Disclosure Agreements (NDAs), privacy policies, and Data Processing Agreements (DPAs).

1. Template Sales Contracts: One of the first things that any SaaS business should get prepared. Sales contracts outline the relationship between the company and its customers. They set forth the terms and conditions under which the service will be delivered, payment conditions, renewal and termination clauses, warranties, and liability limitations. They can often come in a couple of formats for SaaS businesses. One is a Master Service Agreement (MSA) that outlines the terms and conditions of the business relationship. The other is a Statement of Work. The statement of work or SOW outlines the work that will be done for the customer and the deliverables that will be included under the overarching terms and conditions of the MSA. A detailed sales contract will ensure both parties are clear about their respective rights, obligations, and the parameters of the service being provided. Given the recurring revenue model of SaaS businesses, contracts should also cover conditions around service renewals and cancellations.

2. Template Non-Disclosure Agreements (NDAs): In the course of doing business, a SaaS company may have to share proprietary information with its customers, or customers may share it with you. An NDA safeguards the company by legally binding the customer and your company to confidentiality, prohibiting them from disclosing sensitive information to unauthorized parties. The NDA template should cover the definition of confidential information, the purpose of sharing such information, the obligations of the receiving party, and the duration of the agreement. You can find an NDA template that suits many needs on our site here. It’s worth noting that NDAs should be utilized in any situation where proprietary information is exposed, not just with customers.

3. Template Privacy Policies: Privacy policies form an integral part of a SaaS company’s legal framework, given the vast amounts of customer data these businesses typically handle. A privacy policy outlines how a company collects, uses, stores, shares, and protects the customer’s data. It also covers what happens to that data once a customer stops being a customer. Is it deleted and after how long? It’s essential to ensure these policies are compliant with relevant data protection regulations, such as GDPR in Europe or CCPA in California. Regular updates of the privacy policy are also critical to reflect changes in law, technology, and company practices.

4. Template Data Processing Agreements (DPAs): With stricter data protection laws in place, DPAs have become increasingly important for SaaS companies. DPAs detail the obligations of both parties when a data controller (the customer) uses a data processor (the SaaS company) to handle personal data. It also outlines which third-party providers will be handling a customer’s data during the process of using your product. This might include your servers and databases, all the way down to your CRM system. This includes data security measures, data subject rights, data breaches, and data transfers. A well-crafted DPA provides an additional layer of legal protection and demonstrates the SaaS company’s commitment to data protection.

Crafting detailed, precise, and effective contract templates is non-negotiable for any SaaS company. Using these as your base contracts when you get into contract negotiations is the best way to ensure your contracts are in order. Although it’s not always possible (as customers like to use their contracts) it’s easier to track variations from your base contract instead of tracking the clauses in contracts that aren’t your own. It not only provides legal protection but also enhances customer relationships by ensuring transparency and setting clear expectations. While creating these templates, it is advisable to seek legal counsel in the SaaS industry to ensure full compliance with all relevant laws and regulations, as well as to cater to specific business needs. The right contracts will protect the company’s interests, facilitate smooth operations, and ultimately contribute to the company’s success.

How to get started with effective contract templates

Saying that you should have legal templates to use in your business is one thing, actually getting them up and running is another thing. Understanding the legal requirements for what should be in a contract is information you’d usually get from legal counsel but understanding the business needs of your company is often driven by the founders. This needs to be communicated to the legal team creating the contract template so that it will be fit for purpose.

1. Understand Your Business Needs

Before drafting your contract, fully understand the specific needs of your business. Every business is different so this can be very specific. This includes the services you offer, your business model, your customer base and their legal needs, your intellectual property contract needs, compliance requirements, and operational intricacies. This information will dictate the content and structure of your contracts. Think of the different legal requirements of selling to a small business of two hundred people compared to the requirements of selling to a government institute for instance. The legal needs will be very different.

2. Define Clear Objectives

Each contract should have a clear objective. Are you outlining terms of service in a sales contract or defining the confidentiality terms in an NDA? The purpose will guide your language, terms, conditions, and any use of external links. It also helps to make your contract comprehensive and understandable to the client, avoiding potential confusion.

3. Include Necessary Legal Elements

Ensure that your contract includes all the necessary legal elements for a sales contract. These include offer, acceptance, and consideration for starters. For a SaaS contract, there is a lot more that should be included to make the contract a valid and useful one. Your legal counsel will help you with this. Your effective contract template should also clearly define the parties involved, the terms of the agreement, and the jurisdiction under which disputes will be resolved.

4. Specify Terms and Conditions

Clearly outline the terms and conditions of the service being offered. This is outlined in your MSA. This includes the payment terms, renewal and termination conditions, data handling procedures, and liability limitations. Often the scope of service is then presented in an SOW that is governed by the MSA. Precise terms and conditions not only protect your legal interests but also help to set clear expectations for your customers.

5. Incorporate Relevant Data Protection Clauses

As a SaaS startup, you will likely handle a lot of customer data. Consequently, you must include robust data protection clauses in your contracts. Privacy policies and data processing agreements (DPAs) should clarify how you collect, use, and protect customer data. They should also be compliant with relevant data protection regulations such as GDPR and CCPA. Think about using a catch-all here, even without customers in Europe by referring to the highest standard of data protection you will create a sense of security and good faith with your customers.

6. Prepare for Dispute Resolution

Contracts should always contain a clause outlining the procedure for dispute resolution. What happens when things go wrong? This could involve mediation, arbitration, or litigation. A clear dispute resolution clause will provide a roadmap for resolving disagreements without damaging business relationships.

7. Use Clear, Unambiguous Language

Clear language is vital. Avoid legal jargon that could confuse your customers. Clarity promotes understanding and reduces the chances of disputes arising due to misinterpretation. Make sure this clear language outlines what happens in specific contract outcomes, for instance, what happens if your company gets acquired, are you able to transfer the contract to another party? These are all outcomes that need to have clearly defined solutions.

8. Get Legal Advice

Legal advice is critical when creating effective contract templates. This will help make it your template. A lawyer can help ensure that your contracts are comprehensive, legally binding, and compliant with relevant laws and regulations. They can also help tailor contracts to your specific use case and data usage needs.

9. Regularly Review and Update

Laws and regulations, as well as your business practices and your product, can change over time. As such, it’s vital to regularly review and update your effective contract templates to reflect these changes. Regular reviews will help ensure that your contracts remain relevant, effective, and legally compliant.

10. Use Technology

Finally, consider using contract management software. This can help you create, organize, and track your contracts efficiently. Such tools often come with pre-made templates that you can modify to suit your business, saving you time and effort.

Pulling together a strong set of effective contract templates is a key aspect of getting a SaaS startup up and running. Using templates for contract management not only provides a legal safety net but also sets the foundation for a good relationship with your customers. With the right attention to detail, clarity, and legal counsel, you can create contracts that will significantly contribute to your startup’s success.