Companies offering enterprise software solutions need a contract that spells out how end users can work with the licensed product.
This contract is called an enterprise license agreement (ELA).
But why do SaaS (and product) companies need to draft comprehensive and enforceable enterprise license agreements?
In this article, we’ll explore the benefits and challenges of enterprise agreements. You’ll also learn how to draft a legally binding ELA for your product company.
An enterprise license agreement (ELA) is a contract that grants customers unlimited access to all your product’s features.
This is also called an enterprise software license.
Vendors use ELAs to stratify pricing in order to provide a unique experience for high-paying customers.
Both ELAs and SLAs are end-user license agreements (EULA) because they specify how end users (single individuals or companies) can use an application or software.
An ELA also acts as an umbrella contract that services multiple SLAs at the same time.
However, there are some differences between SLA and ELA.
A service-level agreement (SLA) is a standalone licensing program that gives a single user access to your product.
An ELA is a licensing contract for an entire organization, usually for companies with over 500 employees.
Suppose a massive law firm wants to use PandaDoc as the primary document management solution. They’d have to sign the ELA in order to get access to enterprise-level functionality as well as discounts.
But if all the lawyers at the law firm decide to sign individual SLAs, the law firm would end up paying for individual instances of the same product.
This is expensive and difficult to manage.
Keep conversations moving with contract management software that works at your speed.
Every ELA you create for your product should include the following.
This outlines terms like “authorized end user” and “provider” in order to remove any form of ambiguity.
It also spells out the conditions and stipulations of the agreement.
This includes the legal names of the company’s representatives as well as other documents of incorporation.
The ELA could be a one-time subscription or a perpetual license that auto-renews after a specific period.
The agreement should also contain important dates for deployment, reporting, renewal, or termination.
Customers need to reach a minimum payment or user count threshold to qualify for an ELA.
For example, the ELA could apply to organizations with 500+ employees with a minimum budget of $200k.
You can specify parameters on usage based on location or frequency.
For instance, the ELA can restrict access to only end users within the EU or MENA zone.
This is important for compliance and industry regulations.
This prevents customers from making unauthorized changes to the software, including copying, modifying, or translating the product’s source code.
Other components include dispute resolution mechanisms, conditions for termination, legal jurisdiction, pricing, and operating hours for customer support.
ELAs allow organizations to pay for products used across the company.
This agreement is common for Microsoft products as well as services such as AWS and VMware.
Here are ways customers can benefit from using an ELA.
ELAs come with the best pricing discounts attached to bulk purchases — which will cost you less than buying a single-user software license for every employee.
Besides, the higher the number of users, the larger the discount.
When you buy an enterprise agreement, the standard option is a 3-year license.
In some cases, the vendor might provide license management options to pay for the entire three years or for yearly renewals.
This means that your managers can streamline processes and increase overall productivity since they won’t need to worry about service disruptions while the license is active.
Since your organization is locked in with one product, you can onboard new employees to the software without having to purchase additional licenses with every new hire.
This makes it easier to create a spending budget for every period of time.
ELAs provide organizations with the predictability and flexibility to scale operations smoothly.
With your budget locked in and licenses bagged, you can increase your workload and expand your workforce.
Just make sure you don’t go beyond the limits of the ELA.
Some customers worry about signing ELAs because they present a unique set of challenges.
Let’s explore the potential drawbacks of enterprise software license management.
Switching from one product to another often requires a massive overhaul of internal business operations.
But if you are locked in with one software provider, this process becomes even more strenuous and disruptive.
Say a software company wants to ditch AWS for Microsoft Azure halfway into a 3-year ELA.
This would require changing workflows and personnel, as well as re-addressing the entire information architecture.
ELAs are perfect for massive corporations that can afford to pay top dollar for apps and services.
But for mid-sized companies and startups, paying for enterprise licenses can be a financial challenge.
And with the “SaaSification” of everything, the expenses can stack up beyond the company’s budget.
ELAs give you unlimited access to features.
But in reality, your employees may not use half of them.
As a result, you end up paying a premium for features you don’t even need.
This is one of the reasons why organizations are reluctant to go into ELAs.
Knowing who is allowed to use the application and where they can access the product is vital to signing an ELA.
Unlimited use does not give you the right to do whatever you want with the app or service.
Some enterprise agreements cannot be used outside the specified jurisdiction due to political, ethical, or commercial reasons.
These data center restrictions are common for companies specializing in user data handling and financial services. Sanctions and local laws can also restrict usage in specific locations.
Moreover, some software vendors require customers to renegotiate the contract after acquisitions, partitions, or mergers.
Here is a step-by-step guide to help you draft a comprehensive ELA.
ELAs help software vendors to outline the rules and conditions for customers using their software products.
This agreement often caters to corporations and large companies with massive workforces. However, startups and mid-sized companies can use it to boost organizational efficiency.
To side-step the challenges of creating binding ELAs, you need to adopt the following best practices.
PandaDoc is a contract management solution that allows you to create legally binding licensing agreements with customers.
With our library of templates, you can reduce the time needed for drafting, editing, and redlining contracts.
Companies can also use PandaDoc to handle ELAs throughout the contract lifecycle, from deployment to termination.
The available payment integrations make it possible to renew contracts instantly.
To start creating a custom enterprise license agreement, start a free trial or book a demo.
PandaDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDoc services are governed by our Terms of Use and Privacy Policy.
Jenny Pak Director of Program Management at PandaDoc
Jenny Pak is the Director of Program Management at PandaDoc. With 10+ years in the technology sector, she boasts extensive experience in both B2B and B2C SaaS environments. Her expertise encompasses program management, strategic initiatives, experiential marketing, and product launch/campaign management. In her free time she enjoys spending time outdoors with her dog and exploring the city of Los Angeles for the perfect spicy margarita.
Reviewed byKeith Rabkin Chief Revenue Officer for PandaDoc
Keith has been working in technology organizations for the past 15 years and is currently the Chief Revenue Officer for PandaDoc. Prior to this, he had roles leading Growth for Adobe's Digital Media business, Gmail, YouTube, and Google Fiber.
