Service Level Agreement (SLA)

What is a Service Level Agreement (SLA)?

Service Level Agreements (SLAs) are essentially contracts between service providers and their customers. These contracts detail the services that will be provided and sets standards for the service that the service provider is under obligation to meet. These agreements define the level of service that the customer can expect. They also lay out the metrics by which the customer and provider can measure the service.

You could even have an internal service level agreement. This could be used within your organization when one department provides a service to another department on a recurring basis.

An SLA would also include remedies and/or penalties for situations where the agreed standard of service is not delivered.

Most service providers allow customers to access their service level statistics via on online portal. If the clients see that the service level agreement is not being fulfilled, the client could claim the compensation that they agreed upon in the contract. The online portal would also allow customers to see if they are eligible for compensation.

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Why are Service Level Agreements important?

As a service provider, an SLA helps you manage the expectations that your customers have from you. It helps you define the extent to which you are liable for performance issues, outages, and shortfalls in services. But that’s not all. Your SLAs also clear the air about the circumstances in which you cannot be held liable.

SLAs also assure your customers that they will not be left hanging if anything goes wrong. It also helps them compare the level of service offered by other vendors, empowering them to make an informed decision.

Essentially, SLAs are critical because they make clear the cost of not adhering to the standards of service, granting peace of mind to the service provider and the customer.

What are the 3 types of Service Level Agreement?

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Customer service level agreement

A customer SLA refers to service level agreements between service providers and their external customers. These can also be known as external service level agreements. Here there customers and the service providers come to negotiated agreements on the services to be provided.

A customer SLA includes the exact details of the service that the customer can expect, provisions regarding the service availability, the standards for ever level of service, the responsibilities of the service provider as well as the customer, procedures for escalation, and the terms for cancellation.

Internal service level agreement

Internal SLAs are service level agreements between organizations and their internal customers. This could be interdepartmental, involve a site or even be between sister concerns regarding services provided on a recurring basis.

Multilevel service level agreement

Multilevel SLAs break down the SLA into several levels that specific to a series of customers using the service. As an example, a SaaS company could extend a certain level of service to all their customers, but it is also possible that the company might offer different levels of service to customers according to the pricing plans which those customers opted for.

The SaaS company will layer these tiers of service and support in a multilevel service level agreement.

What are the components of Service Level Agreement?

The SLA would include the services and the level at which they are provided, along with the metrics by which they would be measured. Along with this, your SLA should define the compensation or penalty if the standards cannot be met.

It would need to clearly state which services are included, and which ones are excluded. It should also mention the security procedures that are taken by the service provider.

You should also include an indemnification clause to protect your customers from third-party litigation that result from service level breaches

Your SLA should also include a protocol for updating or changing it. This is vital because vendor capabilities and service requirements evolve over time. In addition to this, the circumstances in which the agreement would expire or be terminated should be detailed.

Which SLA metrics should you monitor?

The SLA metrics may vary depending on the types of services that you are providing. While you could include many metrics in your SLA, it would be beneficial to simplify it and only add the ones that are most important. Doing so would reduce confusion for the service provider as well as the customer. 

Monitoring too many metrics might reduce the effectiveness of the exercise because the likelihood of the data being properly analyzed reduces.

Some of the metrics that you should consider monitoring are: service availability, defect rates, security, technical quality, defect rates, and business results.

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Can Service Level Agreement be negotiated?

While a lot of service providers are not willing to negotiate on their SLAs, sometimes it will be possible. 

Many service providers offer less uptime than they are capable of providing so that they have a bit of a buffer in case there is an issue. Often, it will be possible to negotiate for more uptime.

Sometimes, service providers will be willing to offer greater uptime if the customers increase the subscription term.

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What are the most common Service Level Agreement mistakes?

No clarity about calculations

Both the customer and the service provider should be able to calculate the SLA metrics. If the contract says that only the service provider’s calculations are valid, it would be a cause of concern for the customer.

Considering it one-and-done

You need to have a mechanism to update your SLAs and the customer’s requirements and the vendor’s capabilities change over time.

Having more SLAs than needed

If you have too many SLAs in place, it might reduce the impact of each of them. It would also make it tougher to understand which SLAs to pay more attention to. This could end up in a breach of service.