For SaaS startups, predictable Annual Recurring Revenue (ARR) is king. Investors track it, founders plan runway on it, and sales teams celebrate it. But the EU’s Data Act, which took effect on 12 September 2025, changes the rules of the game: customers will have a mandatory right to switch most SaaS providers with a maximum of 2 months’ notice, which automatically terminates the existing SaaS contract – even if it was a multi-year fixed-term deal. That means: revenue you were counting on for ARR reporting might no longer be as safe as you think.
Step one is to check whether your SaaS model falls under the new rules. If the core of your service is the processing and storing of customer data that can be exported, it’s highly likely you’ll be affected by the EU Data Act’s new switching right.
Here are five points you need to adjust in your SaaS agreements now to protect ARR and keep your growth on track.
1. Rethink Monthly Billing
Monthly billing in fixed-term contracts may feel flexible and customer-friendly, but it carries a serious risk under the EU Data Act. Because customers can now switch providers with as little as two months’ notice, every monthly billing cycle becomes a potential exit point. The danger is that part of your ARR, which you already counted as secure because of the fixed-term contract, can suddenly disappear if customers decide to switch mid-year.
ARR safeguard:
- Shift towards quarterly or yearly prepayments to stabilize cash flow and reduce churn risk. Ideally, make full-term prepayment your default.
- Structure prepayments so that upfront investments (such as onboarding, training or set-up fees) are covered immediately.
- Clearly define in your SaaS contracts that prepayments are non-refundable and specify which portions reflect real, already-incurred costs, e.g. onboarding, training or set-up costs.
- If customers insist on monthly billing for long-term contracts, state explicitly that the minimum term reflects onboarding and set-up costs, and consider charging higher monthly fees.
2. Make Discounts Switching-Proof
Startups love prepaid annual or multi-year deals — they lock in ARR, improve cash flow, and impress investors. To close such deals, providers often grant significant discounts.
Yet, under the EU Data Act, early termination rights mean customers can walk away mid-term – while still having profited from those discounts.
ARR safeguard:
- Tie discounts directly to prepayments to make longer commitments more appealing.
- Add clawback provisions to your contracts to ensure that discounts or other incentives have to be repaid if customers leave before the agreed term.
- Clearly state in your contracts that discounts or other incentives are granted in return for long-term commitments, reinforcing the legitimacy of higher early termination fees (see next point).
3. Include Early Termination Fees
The risk of early terminations can be mitigated through early termination fees. While switching charges will be banned after the beginning of 2027 (and until then are limited to cover migration costs only), the EU Data Act still allows for proportionate early termination penalties. These are especially important in cases where larger prepayments cannot be enforced, providing a safeguard against unexpected revenue loss. Early termination fees must be proportionate and should reflect real net losses. Charging the full remaining contract value without deducting saved costs (e.g. on hosting, support or licensing) is not in line with the aim of the EU Data Act to facilitate easy switching – and risks being interpreted as a hidden prohibited switching charge.
ARR safeguard:
- Calculate and justify early exit fees based on real incurred costs, such as onboarding investments, or other unrecoverable expenses, as well as saved costs.
- Raise your monthly fees while pushing for discounted yearly or multi-year deals – thus supporting early termination penalties that are based on the (higher) monthly fees
- Show transparency in how fees are calculated — defensible penalties are more likely to stick and discourage opportunistic exits.
4. Price for Flexibility, Not Just Lock-In
If long-term commitments are no longer guaranteed, your pricing model needs to evolve. Instead of relying on lock-in effects, consider approaches that balance flexibility with financial stability:
- Tiered discounts: bigger discounts kick in only after a certain usage or time threshold.
- Amortized onboarding fees: recover heavy investments in the first months.
- Clawback clauses: if a customer leaves early, they repay discounts that assumed a longer term.
- The EU Data Act differentiates between data processing services and other/ancillary services by the same provider. If feasible, structure your contracts to separate data processing from your primary services and assign only a small portion of the overall fees to the data processing component.
ARR safeguard: This keeps customers incentivized to stay while making sure you don’t bleed cash if they leave.
5. Design Switching Clauses That Work for You
You can’t stop customers from switching, but you can shape how it happens. A clear framework defines notice and transition periods, data migration processes, any data exempt from switching and the precise consequences of switching. This reduces the risk of chaotic exits and helps you retain control over the impact.
ARR safeguard: Clear switching rules keep control in your hands and reduce the chance of disruptive churn.
Last but not Least: Update Your ARR Forecasting & Investor Story
Predictable ARR is what drives valuations — but under the EU Data Act, contracted ARR no longer guarantees revenue stability. Every fixed-term deal now carries a substantial switching risk.
ARR safeguard:
- Build churn scenarios into your financial model.
- Stress-test your pipeline and revenue forecasts against early exits.
- Adjust how you present ARR to investors: show you understand the risks, have built safeguards, and are ahead of the curve.
Bottom Line
The EU Data Act doesn’t end fixed-term SaaS contracts — but it does force them to adapt. There is no need to panic: by acting now and adjusting proactively, you can stay compliant, protect revenue, and even turn the new framework into a competitive advantage. Startups that update their contracts, pricing, billing cycles and forecasting now will not only safeguard ARR but also send a strong signal to investors: we know the rules, and we’re playing to win.
Need help in adapting your contracts or guidance on how the EU Data Act might affect your business?
