Build Strong Contracts


Contracts are more than a list of terms and conditions.

Contracts align you and your customers. They define what value you will deliver, when you will deliver that value, and what each party is responsible for in order to make it all happen. Strong contracts set clear expectations, and become a measuring stick of your performance. At the end of each contract, will your customers agree you’ve done what you’ve promised? If not, your chance of renewal is effectively zero.

For most SaaS companies to effectively keep and grow customers, you need to build strong contracts.

What’s in a strong SaaS contract?

A strong SaaS contract should include the following:

  • Clear Terms and Conditions: A strong contract clearly outlines the rights, responsibilities, and obligations of both the SaaS provider and the customer. It includes specific details regarding the scope of the service, usage limits, support levels, data security, and any additional services or features provided.

  • Contract Length: When does the contract start, and when does it end? Longer contract durations, such as annual or multi-year agreements, generally indicate a stronger contract. Longer-term commitments provide revenue stability and reduce the risk of customer churn.

  • Contract Pricing: Transparent and straightforward pricing terms that are clear and comprehensible for customerm. Your pricing should ensure transparency and avoid confusion or billing surprises.

  • Automatic Renewal: Automatic renewal eliminates the need for manual renewal processes, paperwork, and negotiations. It streamlines the contract renewal process, saving time and effort for both the SaaS provider and the customer, and allows the cusomer to seamlessly us ethe service without inteription or lapse.

  • Notice Period: The period of advance notice that either party must provide to terminate or not renew the contract. It specifies the timeframe within which one party must inform the other about their intention to terminate the contract or not renew it at the end of the current term.

  • Renewal Price Increase: You should deliver more value with each renewed term, and if you do, you should include an automatic price increase. The contract should provide clarity on how pricing will be determined at renewal, and include some sort of cap (usually around 10%) on how much the price can increase with automatic renewal.

Benefits of Stong Contracts

When built correclty, strong customer contracts provide stability, predictability, and revenue assurance for SaaS providers.

They contribute to higher customer retention rates, reduced pricing negotiations, increased upsell opportunities, better resource planning, and a competitive edge in the market.

Investing time and effort into drafting and negotiating strong contracts will help you run more effective renewal operations and enable your business to grow faster.