SaaS and Cloud Contract Terms - Common Paper Benchmark Report

Live from Schenectady, New York, it's SaaS Talk with the Metrics Brothers, Growth and CAC.

And I'm Growth, better known as Ray Reich, founder and CEO of Benchmarket.

And I'm CAC, better known as Dave Kellogg, independent consultant, EIR at Balderton Capital, and the author of Kellogg.

And together we are the Metrics Brothers.

And quite the pair at that.

Hmm, quite the pair. Well, I'll take that as long as it means we continue to increase our listeners, and we really appreciate those almost 20,000 active listeners we're getting per month right now.

Holy cow, Ray, we have 20,000. I didn't actually know. I don't track the stats like you. 20,000 listeners. Well, thank you.

Yeah. So what do you think we should do this week?

Well, you know, over the past few episodes, we dove deep, or we deep-dived into functional metrics, including CRO metrics, CMO, CCO, PS, customer service. I thought today we could try a horse of a different color and talk about, get ready for it, contracts.

Contracts? Dave, it's almost like saying we're going to bring an attorney on to speak. Don't you think people might actually skip this episode?

Do not touch that dial. Yeah, I know, this was actually Ray's idea. Ray found the study. And I was like, Ray, we can't do an episode on contracts. And he emailed me the study, and I read it, and like, yeah, we can. So, it turns out there's a startup called Common Paper, and they released a benchmark report, or they released a benchmark report on contractual terms that I personally think is key for anyone who negotiates software agreements, including, interestingly, the super early-stage companies who design, who do design partner agreements. They even have a section on that, which was surprising.

Yeah, I think it's going to be great for the people who negotiate it on both buyer and seller sides. So that's what's really interesting in this.

Absolutely. Yeah, as a CEO, this is an area where I felt very exposed because I didn't have a lot of background in it. Uh, and I don't know if unlimited liability is common or uncommon. I don't know how much E&O insurance to carry. I don't know what courts we should pick, you know, whose law, arbitration. I just had no intuitive sense of a lot of those things. And this is going to help with that.

Yeah, I was fortunate where I grew up at GE, every region had our own lawyer. So every customer negotiation I got in with our cloud services, which was called timesharing back then, I worked closely with a lawyer. So I kind of learned it through experience, but it's nice that we finally have benchmarks.

Absolutely. It's great to have data.

But before we dive into this benchmarking around cloud contracts, Let's hear a word from our presenting sponsor. The Metrics Brothers is proudly sponsored by Benchmarkit, the B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Grothright have put the Metrics Brothers podcast on hiatus for the remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave at Kellogg and Ray on LinkedIn at Ray Reich. Thank you so much for listening to the Metrics Brothers podcast. Okay, Dave, let's start with a high-level overview of the company and the benchmarking report we're going to be breaking down today. And by the way, for those of you who are interested, you can go to commonpaper.com/metrics And in their resources, they have their 2024 contract benchmarks. So commonpaper.com and resources.

So how'd you find these guys, Ray? Question for you. How'd you find these guys? How did you find this report and this company?

Well, I have to shout out to Matt Harney. Matt Harney did a post and he highlighted their benchmark report from Cloud Ratings.

Awesome. It's some great stuff here.

You know, that's one of the great things about having this network of kind of metrics and benchmarking colleagues. Everybody finds something new, and it's always interesting when they find something new. It's a little bit like the, the Iconiq Research or the Battery Ventures Cloud Reports. People kind of say, hey, have you seen this? But let's talk about Common Paper. So they're an early-stage company, and they have a pretty audacious goal. They want to create a standard of technology and specifically cloud buying contracts, so cloud service agreements and processes And the founders are pretty impressive. Guy named Jake Stein, who founded RJ Metrics and then Stitch. They have over 1,000 customers, that's 1,000 companies in their contract terms and conditions, including this benchmarking report. And they've also created this— I'll call it an advisory committee, they call it the Common Paper Committee— of 45 practicing attorneys from enterprises, startups, large law firms, and boutique law firms. So a pretty well-rounded base for these benchmarks, Dave.

Yeah, it is. I was happy to find this company. Look, I think I have 2 feelings about this company. One, it strikes me as somebody with a lot of legal interest, but I haven't signed billions of contracts. I didn't grow up in sales like you. So when I became a CEO, it was hard and nobody really had data. You could find people who knew and people who could give you an opinion about what, you know, what's normal and what's abnormal or abnormal. But, um, you didn't really have data. It kind of reminds me of SaaS metrics before the Pacific Crest report. And these guys have first built a software package, it seems. They're going to get a free plug here today that helps you, seems to help, I'd say, SMB and maybe mid-market startups do their contracts. And not just software license agreements, also design partner agreements and mutual NDAs. And as part of their marketing, they did— by the way, this is a great form of marketing, the kind of market study as marketing. They released this benchmark report.

Yeah, and it's a great high-level report with several elements that Result in benchmarks, including things like contract length benchmarks, payment cadence benchmarks, limitations of liability caps, even AI and data privacy, insurance requirements, and as you mentioned, design partner agreements. So why don't we just jump right into it and talk a little bit about the first one, which is the benchmarks for subscription agreement terms on length.

Got it. And we'll put a link to this document in our show notes if we have show notes. You missed my favorite one, Ray, which is who signs on the line. Which is who signs contracts by role. And 75% of the time, 74% of the time, it's an executive, i.e., a C-level. So if you're working— I mean, the first very lesson on like page 2 of this report is if you think a director is going to sign your contract, that's true only about 18% of the time.

You know, Dave, you're right. I missed it because having done probably— oh, I know it's well over 1,000 contracts.

You knew that already.

If someone who was a director said, I'm the signing authority. Man, would my radar go up. I go, really? It's a $100,000 agreement and you as a director have that signing authority in your company? Because typically that's capped at either $10,000 or $25,000 in almost any mid-market or enterprise company.

Agree. You knew that already, Ray. That's that big background in sales. So let me answer your question. You want to talk about subscription agreement terms? This report found that 70% are annual. And 19% are month to month. And that 90%, a number I was happy to see, but I was surprised on the high side, have automatic renewal terms.

I was really shocked at that. And even more, I think, pleasantly surprised from a vendor's perspective. 29% of those annual agreements that have automatic renewals, 29% have a built-in price increase with the median ranging of 5 to 8% year-over-year price increase.

Yep.

But what's also interesting to me, because they didn't share— they shared it was over 1,000 in the population. Well, they didn't share were the attributes of the companies, you know, enterprise, mid-market, etc. And so they didn't break down the benchmarks that way or by ACV. Dave, I was surprised 89% were annual month-to-month, which means 11% were probably multi-year. That seemed a little bit low if there was many higher end of the mid-market enterprise customers in this benchmarking report. Does that jive with you?

Yeah, if they ever end up listening to this episode, it would be really good to show a little bit more demographics on the population that responded to the survey. But, uh, as I kind of slipped in already, I felt the gestalt of this thing was kind of SMB mid-market, and that's one of many clues as to why. There's a lot of people doing monthly invoicing, uh, the payment terms. I don't know, it feels like this is SMB and mid-market. And not as much enterprise. For example, I think your specific point was there does not appear to be multi-year, because I think multi-year is classified as other, which is itself an indicator, uh, in terms of contract duration.

It is. And just to throw out one more benchmark for subscription kind of term and renewals, 84% of those contracts with automatic renewals gave a 30-day renewal notice period. I know I've been negotiating with larger firms who wanted a 90-day notification period, but 84% here, it was a simple 30-day notification period.

And just to define that, if I try to not renew on day 28 days before the end, it's too late, right? Is that what that means? That's exactly what it means.

In practice, I don't see many firms holding most customers to that, but that is the standard.

Got it. It's a great term. It's a great term. I love by default you're renewing. And by the way, a certain percentage of those had a price increase, did they not? I can't remember. the report. Actually, most of them had a price increase.

29% had built-in price increase between 5% and 8% uplift every year.

Ah, there it is. Yeah, yeah, yeah. So, which is a pretty high uplift to have built into the contract. The, the fact that the fee goes up at 29% was a little bit low, in my, my opinion. The increase of 5% to 8% was a little bit high, and there's no fee increase specified in 61% of them. I'd love to know if there's a cap Right? Because I've seen that they don't address this here, but the fee will go up, but by not more than, and they don't seem to address that. And that was a term that at least we in the past used a lot, not happily, but customers kind of forced us into using.

Totally agreed. Well, let's go into payment terms because this one really surprised me. And as you mentioned, you know, it's like SaaS metrics were 13 years ago. Where'd you get the data? In 4 of the early-stage companies that I went into in the kind of under $10 million range, I actually rewrote the master service agreement. And I still remember the CFO and CEO saying, how do you know this? I go, 'cause I've done thousands of these agreements. But here was one of the things that jumped out at me that I would never do in an agreement above $10K to $15K. And that is 48% of the payment terms were monthly invoices and 46% were annual invoices. So, Dave, were you surprised that 48% of these contracts use monthly invoicing cadences?

You know, yes and no. I mean, I think back to— I, you— to me, it became an assumption that this was actually an SMB and mid-market SaaS report. You know, I've worked with some companies who do $5K deals per year, and some of them do monthly invoices when we start. And one of the first things I do is move them to annual invoices. So, so even for a relatively low monthly fee, like $400, uh, you can easily get people on an annual contract and annual invoicing, even, even if it's month to month in terms of renewal. You can get them on annual invoicing. So, you know, it's not well known, Ray, but Salesforce in the earliest days had month-to-month everything. It was month-to-month payments. I think you could actually cancel in any given month as well. And believe it or not, it was the customers who got tired of it. They're like, why am I paying you every month? There's a lot of invoices to process. We're going to use this thing probably for the next 5 years, 10 years. Let's just do annual.

That makes total sense to me. And I would tell you, if I was either a new CEO entering a company or the CRO, and we had monthly invoices, I would strongly recommend looking at moving to an annual because the attrition rate, from my experience, because I've done this a couple times, it's not very high, Dave. You might back off on a couple customers, maybe 2%, 3%, 4%, but if you're trying to extend cash runway, moving from monthly invoicing to annual invoicing is a great place to start.

I mean, look, Ray, I get Crunchbase, LinkedIn, Calendly, all annual, right? And we're talking $500 a year, $100 to $500 a year, and we're doing annual. So, so at this point, I actually really don't understand the motivation for monthly. Maybe people are arguing when it's $2K a month, $3K a month, so it's, you know, it's getting to be a lot of money per year, people want to try it. But, but even then, you might, might do a 2 or 3 month trial period and then flip to annual, right? I just don't understand that at steady state why you're not annual.

Yeah, the other thing, I just want official payment terms, equipment to keep moving. Because we're going to spend a lot of time on these first 2 because they're really important. But 62% was the benchmark for percentage of companies that had a 30-day payment period. So from customer receipt to payment, it was 30 days. I see a lot of enterprises asking for that 45 to 60 days. But to me, this also reflects it's probably mostly that SMB category.

Got it. Let's flip to liability, one of my favorite topics because it's so scary. And their data says that 85% of agreements have a cap, a general cap, meaning damages a vendor or customer could receive as a result of a lawsuit outside of specific categories, which we'll get to in a minute. But 85% of agreements have a cap limited by the amount the customer paid you in a year, i.e., limited to the annual fee, which I think is fantastic. It's a term I would ask for in every case. Surprised or not surprised on that one?

No, that's— every agreement I've had has used that, and that's over 25 years, so not surprised. What did surprise me, and it's rare and it's under 1%, was unlimited limitation of liability. I can't imagine any company who's managing any sensitive data at all, or, you know, personal identifiable, company identifiable, 1% had unlimited claims. I would never, ever do that, Dave.

Yeah, I think I did it once in my career. I can't remember. I can't remember. I know we had one customer who really insisted upon it, and I can't remember how else we boxed it in. But, you know, it comes up, certain people ask for it. And I just think, look, this benchmark report alone is worth it to just be able to look somebody in the eye and say, do you know this happens in less than 1% of software contracts? We're not going to do it. Right. Nobody gets this. And now you've got data to back you when you say that.

Now, it did highlight that 13% of cloud service agreements have increased claims, but there was really no quantification of that, Dave. So I don't know if that's 2x, 3x, or what. Did you do many higher than equal to fees paid?

Yeah. Oh, yeah. We were forced into higher a few times. And then, then that starts to intersect with your errors and omissions insurance and your liability insurance. So it's pretty easy if you're carrying $5 million in liability insurance to go up to that if somebody wants more. But then beyond that, it gets very hard. So the way I think of this is by default, you want to get, hey, you want your money back for a year? Great. You're not going to get more than that as a result of any lawsuit. And then, okay, next level, they won't agree to that. Well, how much insurance do we have and how much can we cover from that? And it's not going to cover all cases. It's not a general cap. But how much is the insurance, for example, for errors and omissions, uh, or cybersecurity? Uh, and then go beyond the insurance is where, you know, it gets really, really scary.

Now, we've only got 5 minutes left, and this next one that we're going to talk about, I really— I know we'll spend some time on this, Dave. And that is the inclusion of AI and data privacy terms. So if you looked at Q1 2023, and that was still post- OpenAI and ChatGPT announcement, only about 2% of agreements said anything about the use of data and AI. But now in Q4 of 2023, almost 25%, a 10x increase of cloud service agreements actually have a clause specific to AI and the usage of data. So to me, that's wonderful news. Because I know that I'm always concerned about people who want to train their models on my data and how they keep it anonymized.

Yeah, and to the extent, look, to the extent it's part of your value proposition that you're giving away, let's just say some valuable software free in order to get the data so you can train models. If that's your business model, it's absolutely crucial that you have the right to use the data that you've gathered, right? So you have to figure out what your business model is. And then adapt your contract accordingly. The other way to look at this is as a pricing issue, which is I have 2 prices, one for people who let me use their data to train my models and the other for people who don't. And the second one, again, depending on my business model that I'm shooting for, it might be 3 to 5 times higher, right? It might be a lot higher. Sure, I can still sell it to you. And sure, Ray, you can keep your data private, but the price just went up a ton and you may not want it. And that's okay with me because— I've reflected that in my pricing.

Yeah, it's funny, I, I remember the new Salesforce commercial that came out about 2 months ago that data is the new, I think, either oil or gold. And specifically, they say they don't use company-specific data to train their algorithms, which I thought was surprising to me.

Well, when I worked there over a decade ago, I can tell you 2 things. One, it was heresy to talk about leveraging data and analytics because one of my first instincts was, God, we have all this data, How long are sales cycles, win rates? We could make a benchmark database and sell it. And that was heretical because one of Salesforce's probably 5 values, I'm not going to remember them all, is trust. And Marc is very, very into trust, maybe to a fault on this issue, because they're sitting on a goldmine of data that they're not using. And I'm not up to date on their latest interpretation of trust, and I haven't seen the ad you're talking about. I hope it's gold, not oil, because data was the new oil 20 years ago.

Right.

But in any case, I do believe that Mark is very values-driven and that trust— they drill nothing is more important than the trust of our customers. That literally gets drilled into your head during the onboarding.

Well, talking about trust, let's go to the 5th topic, and that was insurance requirements. Once again, I think it fits the profile of the respondents, but only 9% of these 1,000+ companies actually include required insurance requirements, i.e., the buyer said you got to have general liability insurance or errors and omissions or cyber insurance. So only 9%. What do you think of that, Dave?

I was a little surprised. Again, it may reflect who they're selling to because certainly in enterprise, at least when I ran a startup in enterprise, I don't know, I wouldn't know the percentage. This is why I'm so happy there's a benchmark report, but it sure felt more like 50% plus to me.

Totally agreed. Now, the next thing as we wrap up this episode, I know you as a former chief marketing officer will like this. 45% of agreements had some level of publicity rights where the vendor could actually publicize that their new customer was a customer.

Yeah, not surprising. Often used as a price negotiating term. Sometimes those rights, if you read the reporters, are as basic as, I can put you on a customer list on the website. And sometimes, like, for example, the design partner agreement, they're more like, we can do a case study on you and you can't say no. In general, I don't think they're worth very much, especially for case studies and references. Certainly, it is very important to me to be able to list you on my website. And once again, I almost feel like the price goes up if you don't let me do that. That one's more metaphorical, but, but, but yeah, by default, you should have the right to put somebody on your website. If they want to take that out, you better get something for it.

And Dave, you know, because we're coming to the end, I hate to do this, but I want to jump to something that I found, and I know you found very interesting. That is, they also benchmark design partner agreements, and specifically they looked at feedback obligations, publicity. You want to cover that real quick?

Yeah, I was super surprised to find this in there and very happy because I believe sophisticated startups today, particularly in enterprise, try to find a set of customers who they really want to make happy. And they kind of complete their product, to use Geoffrey Moore language, with those customers. And they call those customers design partners. And I've never, ever seen data on this before. And the design partner program usually includes a feedback obligation, like you're participating in a program. We want to get you on the phone once or twice a month to talk. Those are in these agreements. Case study provisions are in these agreements. You can talk with the members if you want. Future discounts, which I never gave, frankly, are in these agreements. So that one surprised me. And also just the term length of the design partner program. So if you are a startup at the design partner phase where you're trying to get your first customers together and really partner with them to complete your product, definitely read this.

Yeah. And I think on the discount specifically, because I was blown away by the level of discount. The number 1 cohort, which represented 40% of design partner agreements, had a 50% discount. Another 21% had a 20% discount, and 14% had a 30% discount.

So— And was that in perpetuity? Was that for the rest of their life as a customer? Oh, wow. It looks like it is. Yeah, that's a big gift. Then again, we can always double the prices. It all depends. It all depends on your pricing in the design partner program.

That's true. So, Dave, before we close out today, any other things last minute you want to highlight here?

Nope, that's it for me, Ray.

Okay. Once again, a great benchmarking report on cloud contract or agreements. And specifically, you can go to commonpaper/resources and see it. Thank you, everyone. And thank you, Dave.

Take care. Thank you, Ray. The Metrics Brothers AI, SaaS, and More is a production of The Metrics Brothers Growth and CAC and a member of the Benchmarkit Podcast Network. By accessing this podcast, you acknowledge that The Metrics Brothers make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided Or the humor content of the jokes told.

Ray.

Information, opinions, and recommendations presented are, according to our spouses, probably wrong and provided for information purposes only. This podcast should not be considered professional, or for that matter, unprofessional advice. We disclaim any and all liability for any direct, indirect, indirect, misdirect, incidental, special, ordinary, consequential, inconsequential, or other damages arising out of any use of, or God help you, relies upon the information presented here. Ray Grothreich is based in New York City and available on X @RayReich. Dave Kellogg is based in Silicon Valley and available on X @Kellogg. Schedectady, which is French for unspellable, is not our actual production location. Thanks for listening.