Customers are increasingly attempting to renegotiate the terms of existing SaaS agreements, to reduce costs as more SaaS suppliers enter the market offering competing and cheaper SaaS services. In order to pre-empt such discussions SaaS suppliers should review their current SaaS agreements to ensure that they have the following terms in place to deal with and counter such requests.
Annual Price Alignment
SaaS customers will argue that hosting, storage and IT costs are becoming ever cheaper, so the savings should be reflected in prices. However, even if this is true, this does not automatically have a knock-on effect on a SaaS supplier’s total costs. Wages, IT and professional indemnity costs are increasing. It is therefore prudent to have the right to increase fees included in the pricing terms of your SaaS agreement. SaaS suppliers can then decide on an individual basis whether to actually exercise this right. Without this right, SaaS suppliers will have difficulties increasing prices at all.
Merger & Restructure
Depending upon the pricing model used, SaaS suppliers may or may not align prices to the numbers of users, traffic, data storage etc. However all SaaS suppliers set their prices based upon some sort of variable – which could change in the future. For example, if a SaaS customer merges their business with a competitor, is acquired, or simply restructures its business, a SaaS supplier must have the right to adjust prices to reflect the increase in users, traffic, data storage etc. This right should be specifically included in the terms of the SaaS agreement. It should include the right to adjust prices if the scope of access to the SaaS services is to be altered or increased, to a different set or extended group of users.
SaaS customers often order SaaS services for a fixed term and obtain a discounted price. The SaaS agreement often says nothing about an increase in prices after the expiry of the fixed term. SaaS suppliers should always include a right to renegotiate or increase prices prior to expiration of the fixed term. If a discount has been given in return for a fixed term then any discount should cease to apply after the fixed period expires. If there is no fixed or minimum term SaaS suppliers should include a specific contractual right to renew prices on a regular basis.
Any termination rights given to a SaaS customer in a SaaS agreement could become problematic when negotiating changes to existing terms. Customers who have the right to terminate a SaaS agreement at any time, can simply demand a lower price and then terminate if there is a disagreement. Where SaaS customers are granted more restrictive rights of termination, it will be more difficult for them to terminate if you exercise a contractual right to increase prices.
Changes in Law
The laws applicable to your SaaS agreement will change with time. SaaS suppliers should reserve the right to amend their SaaS agreement terms to incorporate any changes in mandatory applicable laws, without this triggering a wholesale renegotiation of the SaaS terms generally. For example, once the new Data Protection Directive is finalised (probably next year), SaaS suppliers may have a mandatory obligation to disclose data and security breaches which may currently be prohibited under existing SaaS agreement terms.
Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:
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