Should I Make Long-Term or Short-Term Commitments to My SAAS Customers?

Have you thought about which parts of your SAAS customer contractual commitments should be a short-term, and which part should be a long-term? Well, if you are looking for growth equity or a venture capital investment and you have not thought about it, then how about we do that now? 

What Should/Could Be Short Term?
The key with SAAS models is that most* are not perpetual models (aka forever) (like a typical software licensing model where the customer purchases a perpetual license to the software), so things are supposed to change along the way. The functionality you provide may change, along with the feature set. Oh yea, this is pretty typical and actually expected for SAAS companies, so don’t feel bad about it. The takeaway here is to think about keeping short in duration your commitments related to functionality, features and pricing (i.e. maybe not multiple years, but a year or less). Why you say? Well, these could change, so be careful what you commit for long periods of time.

• Examples of Long-Term Commitments Requested by Customers: price caps, support commitments, feature and functionality commitments, etc.

What Should/Could be Long Term? 

Well, in the SAAS model I am not sure many really long-term commitments exist, as the customer is receiving/buying a subscription based offering (something that is time bound). As I scratch my head to think about what long term commitments you could/should make, I really can’t think of any. In fact, maybe that is the answer: you should not make any really long-term commitments as that is not the model (if you do make any long term commitments, make sure you think it through as things will change). As I said above, the issue of long-term commitments comes up very frequently when licensing software in perpetuity because the customer is paying you for something (and buying something) they could use forever (they are thinking super long term).

So think short-term commitments in your SAAS contracts and keep the flexibility in your model (to the extent you can). That is what SAAS is all about! Just some thoughts before you focus on your company exit strategy.

Resources:

Oracle’s Long Term Commitment to Support Siebel Products.

Ubuntu Long Term Support Commitment

* Exception: I have seen and worked with some SAAS companies which provide really long-term solutions to their customers, so they will have to address long-term commitment issues. However, the key point is that even those are not perpetual models (aka forever).

Disclaimer: This post is for educational and informational purposes only, and does not constitute legal advice.