The Checklist Every SaaS Founder Needs To Avoid Licensing Disaster

You’ve built an incredible SaaS product. Your users love it, your team is crushing it, and growth is finally picking up.

But the catch is, a great product isn’t enough if your contracts are working against you.

Let’s say you sign a licensing deal that seems perfect at first. Fast-forward six months, and you realize the fine print lets your partner undercut you in key markets.

Or maybe you lose a six-figure upsell because your agreement requires “approval” from a licensor who drags their feet.

I’ve seen SaaS founders lose control of their software, miss out on seven-figure deals and waste years fixing avoidable legal messes - all because they rushed through a contract without asking the right questions.

Your Licensing Agreement Is Your Growth Plan

Your licensing agreement is almost a rulebook for your business. It's not just there for the legal terms, because it also decides:

• Who actually owns your product??(Spoiler: It might not be you.)
• How much money you’ll keep?from each deal after fees and revenue splits.
• Where you can sell next.?Can you expand to Europe? Target a new industry?
• What happens when things go sideways.?Missed payments, breaches, or market changes.

Yet, most SaaS founders I work with can’t explain their own exclusivity clauses. That’s like building a house without knowing if you own the land.

Two Licensing Mistakes That Cost SaaS Founders Millions

1. The “Exclusive” Deal That Backfires

You sign a contract giving you “exclusive rights” to sell your software in North America.

But then your licensor starts working with your biggest competitor… in Canada.

When you confront them, they say,?“The contract only covers the U.S. Canada isn’t part of your exclusivity.”?Suddenly, your “unique” product is just another option in the market, and your pricing power vanishes.

The reason why this happens is simple. Vague terms like “North America” or “exclusive rights” leave room for loopholes.

Here's how I suggest you can fix it.

“Licensee has exclusive rights to sell [Software X] to [e.g., healthcare providers] in [U.S. states X, Y, Z] through [December 2027]. Licensor may not license, develop, or support competing solutions in these markets.”

Side Tip:?Charge 3-5x more for exclusivity - you’re giving up future revenue by blocking competitors.

2. Accidentally Surrendering Control

You sign a deal that looks fair, only to realize later that you need the licensor’s?written consent?to sell to new clients.

You ask for approval, but they take months to respond - and you lose the deal.

Terms like?“non-compete,” “territorial restrictions,”?or?“derivative works”?can quietly trap your product.

One founder I know missed a $2M upsell because their contract required licensor approval for enterprise deals.

The way I suggest avoiding such a case is by adding a clause like:

“Licensee may license software to new clients without approval, provided terms align with this agreement.”

My 3 Other Steps to Protect Your SaaS Business

1. Turn Exclusivity into a Two-Way Street

Don’t just promise exclusivity make your partner earn it. One thing I suggest is to tie exclusivity to performance:

“Exclusivity renews annually only if Licensee generates $500K+ in ARR from licensed users.”

You can also add regional specifics:

“Exclusive rights apply to [U.S. states X, Y, Z] and [specific customer segments].”

2. Plan for the Worst-Case Scenario

Assume things will go wrong. Build exits into every contract. For e.g., Auto-termination triggers:

“Agreement terminates if Licensor misses payments for 45+ days, shares IP with competitors, or breaches uptime SLAs.”

Or even renegotiation rights:

“If cloud storage costs drop by 20%, Licensee’s fees decrease proportionally.”

3. Kill Hidden Costs Before They Kill Margins

Licensing agreements often hide profit-killers. If there's an Unlimited support, then cap it.

“Includes 20 hours/month of support. Additional hours billed at $150/hour.”

You can also shift compliance burdens, like GDPR, HIPAA, or CCPA, costs to the licensor.

Your Pre-Signature Checklist

Before signing any licensing deal, ask:

1. Control:?Can I license this software to others?without?approval?
2. Profit:?If my user base 10x’s, does the revenue split still work?
3. Escape:?Can I exit cleanly if they breach terms?
4. Future:?Does this block me from new markets or industries in 2-3 years?

Final Thought

Your code might be brilliant.

But if your licensing agreement doesn’t protect your ability to grow, pivot, and profit, you’re on shaky ground.??

Next time you review a contract, ask yourself:??

“Is this helping me expand? Or just handing over leverage?”

3 Ways I Can Help You

Whenever you are ready, there are 3 ways that I can help you:

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In 30 minutes, I’ll share proven strategies from 5+ years and 400+ projects to help you avoid these risks.

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