In 2023, the average company used 112 software-as-a-service (SaaS) applications. SaaS vendors power the tools your team uses to track tasks, invoice clients, chat, and analyze data. They make it easy to get started, but it’s just as easy to forget how much of your business depends on systems you don’t control. What looks like a simple monthly subscription can actually carry hidden costs, rigid contracts, and vulnerabilities that become apparent only when something breaks.

Below, we’ll explain how SaaS vendors work, what to ask before you commit, and how to make the relationship work for you.

What’s in this article?

• What is a SaaS vendor?
  
• How do SaaS vendors operate?
  
• What should businesses consider when choosing a SaaS vendor?
  
• What are common contract pitfalls with SaaS vendors?
  

What is a SaaS vendor?

A SaaS vendor provides cloud-based software that you access over the internet. You typically pay a monthly or annual subscription fee and log in through a browser or app. The vendor handles everything behind the scenes, including hosting, updates, and security.

These tools scale with your business without the associated overhead of information technology (IT). Instead of maintaining servers or deploying software across a fleet of laptops, your team gets immediate access to the same up-to-date service wherever they are. If your business runs on platforms like Slack or Google Workspace, you’re already working with SaaS vendors.

What defines a SaaS vendor

• Cloud hosting: The software runs on the vendor’s servers so you don’t need to install anything locally. You just open your browser and get to work.

• Regular maintenance: Vendors handle infrastructure, updates, and bug fixes. New versions and security patches are automatically applied.

• Accessibility: As long as you have an internet connection and a device, you can use the software anywhere.

How do SaaS vendors operate?

SaaS vendors build and run cloud-hosted applications, then deliver those applications to customers via the internet. Unlike with traditional software, there’s no installation, no manual updates, and no infrastructure to maintain on your end. You simply log in and access the service.

Here’s how this business model works.

Application development and hosting

SaaS vendors usually build their products on a single code base, which means every customer uses the same infrastructure. Your data stays separate and secure, but the software itself is shared. This model is known as multitenancy.

This setup allows vendors to:

• Host applications centrally on their own cloud infrastructure or through hosting providers such as Amazon Web Services (AWS)

• Roll out new features and fixes to everyone at once

• Avoid version fragmentation or complex upgrade paths

From a customer’s perspective, this means faster access to improvements and less overhead.

Maintenance, updates, and continuous delivery

Software upkeep is one of the biggest differences between SaaS and traditional software models. With SaaS, updates are automatic and ongoing. You don’t have to plan for version rollouts.

The vendor is responsible for:

• Fixing bugs and deploying patches across the platform

• Shipping new features or user interface (UI) changes without downtime

• Managing software performance, load balancing, and availability

You always have access to the most current version of the software, without needing to schedule upgrades.

Scalability

SaaS platforms are built to scale as customers grow. If your team adds users, expands data storage, or sees a surge in traffic, the system adjusts accordingly.

Vendors handle:

• Capacity planning

• Resource allocation

• Infrastructure scaling in response to usage trends

This is part of what makes SaaS so compelling for small businesses and fast-moving companies: you get enterprise-grade infrastructure without having to build or maintain it.

Security and compliance

Vendors have to secure the software, the infrastructure it runs on, and the data that flows through it. Their security measures typically include:

• Encryption (both in transit and at rest)

• Access controls and authentication layers

• Regular vulnerability scans and system monitoring

• Compliance with data protection regulations

• Third-party audits and certifications

Security is part of the architecture. In a multitenant environment, vendors have to design systems that protect one customer’s data from access by other users at scale.

Onboarding and support

SaaS providers typically offer a full lifecycle of customer support, designed to help teams get started and stay productive.

That often includes:

• Setup guidance and documentation

• Tutorials, training sessions, and implementation support

• Troubleshooting support

• Dedicated account managers or customer success teams for larger clients

Since the application is shared across all users, support teams can spot patterns quickly. A bug report from one customer might lead to a fix that benefits every customer.

What should businesses consider when choosing a SaaS vendor?

Choosing a SaaS vendor means entering an ongoing service relationship. The right vendor can help your business scale faster and operate more efficiently. Here’s what to look for when you evaluate potential providers.

Security and compliance

When your company’s data is stored on someone else’s servers, you need to know it’s safe. Look for end-to-end encryption, certifications such as SOC 2 and ISO 27001, and compliance with relevant data privacy frameworks such as the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA). Verify any security documentation or audit reports for transparency, too. If a vendor can’t clearly explain its security model or lacks certifications in sensitive areas, that’s a warning sign.

Reliability and performance

A polished UI means little if the app is slow or offline when your team needs it. Read reviews, check forums, and ask for client references.

Ask about the following:

• Published uptime metrics: These metrics reflect the percentage of time the software is available to users.

• Service-level agreements (SLAs): These formalize expectations for availability and outline remedies if the vendor fails to meet them.

• Performance consistency: This includes fast load times, responsive dashboards, and minimal latency.

• Disaster recovery: This includes geographic redundancy and automatic data backups.

Support and service

Even great software needs support.

Evaluate the following:

• Support availability: Is help available 24/7 or only during business hours?

• Response times: Are urgent issues responded to quickly? Are response times documented in an SLA?

• Channels: Can you contact the vendor by email, chat, or phone?

• Onboarding and education: Does the vendor help your team get started? Are there training materials or guided setups?

Integration and compatibility

Few businesses run just one system. Your SaaS provider should work with the systems you already use. A siloed tool creates manual work, which impedes scaling.

Check for the following:

• Native integrations: Prebuilt connections with platforms you already use

• Open application programming interfaces (APIs): A flexible, well-documented API in case you need to build your own workflows

• Identity integration: Single sign-on (SSO) and Security Assertion Markup Language (SAML) for better access and security

• Webhooks or export features: Tools that let your data move freely and programmatically

Pricing and cost transparency

Pricing models vary. What matters is clarity and alignment with your usage. Ask for quotes that are customized to your needs, and always ask what happens as you scale.

Assess these traits:

• Transparency: Look for vendors that explain their tiers, usage limits, and extra fees.

• Predictability: Avoid surprises tied to usage peaks, feature access, or API calls.

• Total cost of ownership: A lower monthly price might mask additional fees (e.g., onboarding, support, data overages).

• Price scaling: Understand how pricing scales with the amount of users, data, or features.

Vendor reputation and road map

The features a provider advertises don’t matter if you can’t trust it. Gather information from existing clients and look at records of the vendor’s reliability and future plans.

Find out more about the following:

• Longevity: How long has the vendor been around? Is it profitable? Has it raised recent funding?

• References: Who are its customers? Are there examples in your industry or size segment?

• Road map: Is it actively building and improving the product? Does it have recent or upcoming releases you can review?

Exit strategy

You don’t want your business tied to one provider for life. Check for warning signs that it would be difficult to transfer to a different system in the future.

Consider the following:

• Data portability: Can you export your data in a clean, usable format?

• Offboarding support: Does the vendor provide transition help or allow a grace period for migration?

• Contract terms: Are there penalties for leaving early or notice periods that could delay a switch?

• API and format openness: Does it have proprietary formats or closed systems that make it difficult to leave?

What are common contract pitfalls with SaaS vendors?

Agreeing to a SaaS vendor’s terms might look like a simple click-through or an order form with a few signatures. But that document outlines your rights, responsibilities, and recourse.

If the software is important to your operations or if you’re signing a long or high-value deal, get legal input before you sign and ask the vendor questions up front. You always want clarity on:

• How the service will be supported

• What happens if the product underperforms

• What your options are if you need to exit

• How the vendor will protect your data

• What the full financial picture looks like over time

Here’s where businesses can get surprised.

Vague or missing SLAs

The SLA should explain how reliable the product should be and what happens if it’s not. But in many contracts, that information is either vague or missing entirely. Ensure your SLA includes uptime commitments, how quickly support will respond to issues, and what recourse you have if those promises aren’t met. Without a clear SLA, you have less leverage if the software is unstable or support is unavailable.

Loose data protection terms

Glossing over data security can lead to regulatory compliance issues or even data breaches. Your contract should clarify who owns the data, what data security standards the vendor commits to following, and whether the vendor can use your data, even in anonymized form, for its own purposes.

Some vendors will offer to share more detailed information, such as SOC 2 reports. Accept the offer.

Unclear termination and renewal terms

Contracts don’t always make it easy to leave a service—or even to understand how long you’re committing for. Look out for auto-renewal without clear cancellation terms, long notice periods required to opt out, penalties for ending a contract, and no mention of how you can get your data out. You want explicit terms regarding when the contract starts, when it ends, and how to leave.

For long-term deals, it’s fair to negotiate early termination clauses or to enable exits under specific conditions, such as poor service and major product changes. Some vendors will even let you pay only for months used if you exit early. Ensure that’s outlined ahead of time.

Hidden fees and surprise charges

Base pricing is just one part of the cost. It’s not unusual for contracts to include additional fees for exceeding data or usage limits, accessing certain integrations or APIs, or choosing premium support tiers. Some contracts also include built-in price increases over time (e.g., 5% annual bumps) that should be communicated up front. Ask for a full breakdown of what’s included, what’s extra, and when prices can change.

Inflexible terms for scaling up or down

Your head count might increase or decrease over time. It’s worth having some flexibility, such as prorated pricing for adding or removing users and a chance to review terms after a certain period. Check whether you can adjust terms if things change, especially in long-term contracts.

One-sided rights

Some SaaS contracts give vendors the right to change features, pricing, or terms. In some cases, that means they could remove a feature your team relies on with little warning and you’d still be locked into the contract.

If a product change would materially affect your business, you should have the right to respond. Look for clauses that allow you to leave (without penalty) if the vendor removes key functionality or makes major changes that impact your usage.