SOC 2 Explained: Is Your SaaS Company Ready?

Why SaaS Companies Need SOC 2

SOC 2 has evolved from a nice-to-have differentiator into a fundamental requirement for SaaS companies pursuing enterprise customers. Security-conscious buyers increasingly require SOC 2 reports before signing contracts, making compliance a business necessity rather than just a security achievement.

For early-stage SaaS companies, understanding when to pursue SOC 2, what it entails, and how to prepare can mean the difference between winning or losing major deals.

What is SOC 2?

The Basics

SOC 2 (Service Organization Control 2) is an auditing standard developed by the American Institute of CPAs (AICPA) that evaluates how service providers manage customer data based on five Trust Service Criteria:

1. Security (Required)
2. Availability (Optional)
3. Processing Integrity (Optional)
4. Confidentiality (Optional)
5. Privacy (Optional)

Unlike compliance frameworks with specific technical requirements (like PCI-DSS), SOC 2 is principles-based, allowing flexibility in how you meet the criteria appropriate for your business.

SOC 2 vs. SOC 1

SOC 1: Focuses on financial reporting controls (for companies that impact customer financial statements)

SOC 2: Focuses on security, availability, and confidentiality of customer data (for most SaaS companies)

For SaaS companies, SOC 2 is almost always the appropriate choice.

Type I vs. Type II

Type I Report:

• Point-in-time assessment
• Evaluates whether controls are appropriately designed
• Shorter audit period (days to weeks)
• Faster and less expensive
• Good for initial compliance

Type II Report:

• Period-of-time assessment (typically 6-12 months)
• Evaluates both design AND operating effectiveness
• Demonstrates sustained compliance
• More valuable to customers
• Gold standard for enterprise sales

Recommendation: Start with Type I to validate design, then pursue Type II for customer requirements.

When Does Your SaaS Company Need SOC 2?

Signals You're Ready

Customer Demands:

• Enterprise prospects request SOC 2 reports in security questionnaires
• RFPs include SOC 2 as a requirement
• Deals stall in security review without certification

Company Maturity:

• Raised Series A or later funding
• 20+ employees
• Established security practices
• Stable product and infrastructure
• Sufficient revenue to justify cost ($25,000-100,000+)

Competitive Positioning:

• Competitors are SOC 2 certified
• Targeting regulated industries (healthcare, finance)
• Expanding upmarket to enterprise customers

When to Wait

Too Early If:

• Pre-revenue or pre-product
• Fewer than 10 employees
• Infrastructure changes frequently
• Can't sustain audit costs
• Not yet pursuing enterprise customers

Alternative: Start with security documentation and questionnaires; pursue SOC 2 when customer demand warrants the investment.

The Five Trust Service Criteria

Security (Required for All SOC 2)

Protection against unauthorized access, use, or modification of system resources or data.

Common Controls:

• Multi-factor authentication (MFA)
• Role-based access control (RBAC)
• Encryption (in transit and at rest)
• Intrusion detection systems
• Vulnerability management
• Incident response procedures
• Security awareness training
• Background checks
• Vendor risk management

Availability (Optional)

System or data is available for operation and use as committed or agreed.

Common Controls:

• Uptime monitoring
• Redundant infrastructure
• Disaster recovery plan
• Backup and restoration procedures
• Capacity planning
• DDoS protection
• Service level agreements (SLAs)

When to Include: If uptime is critical to your value proposition or contractual SLAs.

Processing Integrity (Optional)

System processing is complete, valid, accurate, timely, and authorized.

Common Controls:

• Data validation
• Error handling and logging
• Transaction monitoring
• Quality assurance testing
• Change management

When to Include: If data processing accuracy is critical (billing, financial calculations, data transformations).

Confidentiality (Optional)

Information designated as confidential is protected as committed or agreed.

Common Controls:

• Data classification
• Non-disclosure agreements (NDAs)
• Confidentiality training
• Secure data disposal
• Confidentiality in vendor contracts

When to Include: If you handle proprietary business information beyond personal data.

Privacy (Optional)

Personal information is collected, used, retained, disclosed, and disposed of according to privacy notice and criteria set forth in AICPA's Generally Accepted Privacy Principles (GAPP).

Common Controls:

• Privacy policy
• Consent management
• Data subject rights (access, deletion)
• Privacy by design
• Data inventory and mapping
• Cross-border transfer mechanisms

When to Include: If you handle significant personal information (consider GDPR, CCPA requirements).

The SOC 2 Audit Process

Phase 1: Preparation (2-6 months)

1. Gap Assessment

• Evaluate current controls against SOC 2 requirements
• Identify gaps and missing controls
• Prioritize remediation efforts

2. Control Design and Implementation

• Document policies and procedures
• Implement technical controls
• Establish operational processes
• Assign control ownership

3. Evidence Collection

• Establish audit trail for all controls
• Create control matrices
• Document procedures
• Collect evidence of control operation

4. Readiness Assessment

• Internal audit to validate readiness
• Remediate any remaining gaps
• Final documentation review

Phase 2: Audit (1-3 months)

1. Planning and Scoping

• Define audit scope (systems, criteria)
• Establish audit period
• Agree on testing approach

2. Fieldwork

• Auditor reviews documentation
• Testing of control design (Type I)
• Testing of operating effectiveness (Type II)
• Management interviews
• Evidence examination

3. Reporting

• Auditor drafts report
• Management review and response
• Final report issuance

Phase 3: Ongoing Compliance (Continuous)

Maintenance:

• Quarterly control testing
• Evidence collection
• Policy updates
• Security improvements

Annual Re-audit:

• Type II reports must be renewed annually
• Demonstrate continued compliance
• Update for infrastructure changes

Building Your SOC 2 Control Environment

Governance and Risk Management

Required Documentation:

• Information security policy
• Acceptable use policy
• Risk assessment methodology
• Risk register and treatment plan

Controls:

• Board/management oversight of security
• Annual risk assessments
• Security committee or designated officer
• Third-party risk management

Access Control

Identity and Access Management:

• Unique user accounts (no shared credentials)
• Multi-factor authentication for all access
• Role-based permissions
• Quarterly access reviews
• Immediate revocation upon termination

Privileged Access:

• Separate admin accounts
• Just-in-time access for administrators
• Privileged access management (PAM) tools
• Audit logging of administrative actions

Infrastructure Security

Network Security:

• Firewall configurations
• Network segmentation
• Intrusion detection/prevention
• VPN for remote access
• Secure WiFi (WPA3/WPA2 Enterprise)

Endpoint Security:

• Endpoint detection and response (EDR)
• Full disk encryption
• Mobile device management (MDM)
• Automatic security updates
• Lost/stolen device procedures

Cloud Security:

• Cloud security posture management
• Infrastructure as code security
• Container and Kubernetes security
• Secrets management

Data Protection

Encryption:

• TLS 1.2+ for data in transit
• AES-256 for data at rest
• Database encryption
• Key management procedures

Data Lifecycle:

• Data classification scheme
• Retention policies
• Secure deletion procedures
• Backup and recovery
• Geographic restrictions (if applicable)

Monitoring and Logging

Log Management:

• Centralized logging (SIEM)
• Log retention (typically 90 days minimum)
• Log review procedures
• Alerting on critical events

Security Monitoring:

• Intrusion detection
• File integrity monitoring
• Anomaly detection
• Security incident tracking

Change Management

Development Practices:

• Separate dev/staging/production environments
• Code review requirements
• Testing procedures
• Deployment approvals

Infrastructure Changes:

• Change request and approval process
• Testing before production deployment
• Rollback procedures
• Change documentation

Incident Response

Plan Components:

• Incident classification
• Response team and roles
• Escalation procedures
• Communication plan
• Forensic procedures
• Post-incident review

Testing:

• Annual tabletop exercises
• Simulated incident response
• Plan updates based on lessons learned

Vendor Management

Vendor Assessment:

• Security review before engagement
• SOC 2 reports from critical vendors
• Annual vendor reassessment
• Vendor inventory

Contracts:

• Data processing agreements
• Security requirements
• Audit rights
• Incident notification obligations

Human Resources Security

Hiring:

• Background checks for all employees
• NDA signing
• Security training during onboarding

Ongoing:

• Annual security awareness training
• Role-specific security training
• Phishing simulations
• Security policy acknowledgment

Termination:

• Access revocation checklist
• Equipment return procedures
• Exit interviews
• Post-termination restrictions

Choosing a SOC 2 Auditor

Auditor Selection Criteria

Industry Experience:

• SaaS and technology focus
• Relevant trust service criteria experience
• Similar company size and complexity

Reputation:

• AICPA member in good standing
• References from similar companies
• Transparent timeline and pricing

Service Model:

• Advisory vs. audit-only approach
• Readiness assessment services
• Ongoing support availability

Cost:

• Type I: $15,000-40,000
• Type II: $25,000-100,000+
• Factors: company size, scope, complexity

Common SOC 2 Auditing Firms

Big Four (Deloitte, EY, PwC, KPMG):

• Highest cost
• Most recognized
• Best for large or pre-IPO companies

Regional Firms:

• Moderate cost
• Specialized SaaS expertise
• Good for mid-market companies

SaaS-Focused Firms:

• Competitive pricing
• Deep SaaS understanding
• Faster timelines
• Good for startups and growth-stage

SOC 2 Automation and Tools

Compliance Platforms

Vanta

• Automated evidence collection
• Continuous monitoring
• Policy templates
• Integration with 100+ tools
• $20,000+ annually

Drata

• Similar to Vanta
• Strong automation
• Competitive pricing
• $15,000+ annually

Secureframe

• Automated compliance
• Multiple framework support
• Good for early-stage
• $15,000+ annually

Strike Graph

• Affordable option
• SaaS-focused
• Good support
• $10,000+ annually

Benefits of Automation Platforms

• Continuous evidence collection (eliminates manual scrambling)
• Real-time compliance posture visibility
• Reduced audit costs (faster audits)
• Multiple framework support (ISO 27001, GDPR, etc.)
• Policy and procedure templates
• Employee training management

ROI Consideration

Platform cost ($15,000-30,000/year) often offset by:

• Reduced audit fees (faster fieldwork)
• Internal time savings (hundreds of hours)
• Continuous readiness (no year-end scramble)
• Additional framework coverage
• Improved security posture

Common SOC 2 Challenges

Challenge 1: Resource Requirements

Problem: SOC 2 preparation is time-intensive, often requiring 500-1,000+ hours

Solution:

• Hire dedicated compliance/security hire
• Use automation platform
• Engage consultant for gap assessment and remediation
• Start early (6+ months before target audit)

Challenge 2: Evidence Collection

Problem: Gathering evidence for all controls is overwhelming

Solution:

• Implement automation platform
• Establish evidence collection procedures early
• Assign control owners
• Use ticketing systems for tracking

Challenge 3: Control Gaps

Problem: Discovering significant gaps late in preparation

Solution:

• Conduct gap assessment early
• Prioritize critical controls
• Accept some findings if low risk
• Plan multi-audit journey if needed

Challenge 4: Organizational Resistance

Problem: Teams view compliance as bureaucratic burden

Solution:

• Frame as customer requirement, not checkbox
• Show business value (deals won)
• Integrate into existing workflows
• Celebrate milestones

Challenge 5: Maintaining Compliance

Problem: Passing first audit but struggling with continuous compliance

Solution:

• Automation platform for ongoing monitoring
• Quarterly internal reviews
• Assign ongoing ownership
• Integrate into company culture

SOC 2 Report Usage

What You Receive

Report Components:

• Auditor's opinion
• System description
• Control objectives and controls
• Testing results and exceptions
• Management's assertion

Restrictions:

• SOC 2 reports are confidential
• Cannot be publicly shared
• Require NDA for distribution

Sharing with Customers

Best Practices:

• Require NDA before sharing
• Track distribution
• Use secure sharing platform
• Include cover letter with context
• Highlight relevant criteria
• Explain any findings

Marketing Your SOC 2

Allowed:

• "SOC 2 Type II Certified" badge on website
• Mention in sales materials
• Include in security questionnaire responses

Not Allowed:

• Sharing full report publicly
• Detailed discussion of findings
• Using report for unauthorized purposes

The Bottom Line

SOC 2 compliance is a significant investment in time, money, and resources, but for SaaS companies pursuing enterprise customers, it's increasingly essential. The certification demonstrates commitment to security and provides a common language for discussing controls with prospective customers.

Start preparing early—ideally 6-12 months before you need the report. Use automation platforms to reduce burden and maintain continuous compliance. Choose an auditor with SaaS experience who can guide you through the process.

Most importantly, view SOC 2 not as a compliance checkbox but as an opportunity to build a strong security foundation that will scale with your company.

---

Ready to pursue SOC 2 certification? Contact SimplCyber for gap assessment and implementation guidance tailored to SaaS companies.