Three Important SaaS Licensing Tips

SaaS licensing is a bit of a tricky subject to work out, especially for those of you who belong to a startup. It can also be a challenge for companies who use traditional software and are making the transfer over to SaaS.

This migration can be tough for business owners.  It can also be tough on the customers’ end (regardless of their past experience with pre-SaaS software). But the benefits far outweigh the costs.

I would like to give both customers and providers a few good tips on how to make SaaS licensing less confusing and less intimidating –  for all those involved.

I’ve had my share of ‘woes’ with SaaS licensing in the past, as have many of my colleagues, so I know all too well the types of hurdles that you’ll encounter working this out. Therefore, let me take advantage of all I learned and impart my “wisdom” (and that of my colleagues) onto you.

It’s all in the approach. If you do it right from the start, than SaaS licensing for will be easy. Providers need to be clear with terms in order to protect themselves from potential problems in the future. As far as customers are concerned, the most important aspect is to understand the terms of the license agreements.

#1 – Setting Limits and Knowing Limits

Providers must be clear and straight forward with their licensing terms. They need to set simple guideline. This includes everything from cost per item to the actual intended use of your SaaS (i.e., how many simultaneous users are permitted, feature capabilities etc…). This way, customers know their limits; they know what actions are allowed and what actions constitute abuse of the software. They will be aware of which technical malfunctions are covered under tech support and which are not. Users must be made aware the consequences of their actions; so include a section about misuse of the company software and the corresponding legal ramifications (or possible account termination).

As a customer, you need to read these limits, and make sure you understand them clearly; If you have any questions, it is always best to ask before you sign on.

#2 – Itemizing Expenses

This one’s all for the providers. When a customer agrees to the licensing agreement , they thereby agree to the prices incurred by your SaaS product (prices that have been clearly stated in your licensing terms). You need to show each individual component that contributes to the sum costs that the customer will pay.

This doesn’t mean that you need to itemize every element of the software itself, but you need to show the advance expenses for additional support, features and upgrades that will show up on their bill.

Customers, be sure to read these caveats in the license. This way you can spot any unwanted or unjustified charges. If you want to add elements to your SaaS package, calculate the costs in advance to figure out the total expense for your company.

#3 – Account Termination and Renewal Terms

When it comes to SaaS, versus traditional software, account termination and renewal terms can be a tricky topic. Traditional software had licensing systems on a per-unit- purchased standard, whereas SaaS is service-based. So, you need to clearly outline the terms service renewal (end of payment lifecycle). It is wise to include email reminders and notifications to customers as the end of their subscription nears; this ‘heads up’ message serves to avoid unintended interruptions or cancellations of the service. It is also important to state the grounds for account termination – either as a result of rules being broken or a voluntary termination of service usage. This prevents miscommunication on both ends.

As a customer of SaaS, you need to pay close attention to account termination and renewal terms. Think of SaaS as a service, such as internet or cable, rather than a purchased software item.

Many companies are making the switch from traditional software to SaaS. Although licensing for SaaS is a little different than traditional software, the key is to look at it as a service, rather than a product. The three SaaS licensing tips outlined above will help you create a great licensing agreement – for both provider and customer.

Omri Erel
Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.
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