Service Level Agreement (SLA)

A service level agreement (SLA) ensures that specific services provided continually meet the expectations of the paying customer. If a service provider fails to meet their service delivery requirements, they will face penalties as outlined in the service level agreement.

The document will verify service levels, specific details, escalation procedures, and what the enterprise customer is responsible for instead of the provider. SLAs are also a way of demonstrating realistically attainable performance levels to the customer.

What is a service level agreement (SLA)?

A service level agreement (SLA) is a formal contract between a service provider and a customer that defines each service expected. The purpose of an SLA is to hold the service provider accountable to their client and to set customer expectations.

Usually, an SLA specifies key SLA metrics related to service performance, penalties for failing to comply, and the responsibilities of both parties involved.

SLAs are most commonly used by managed services, cloud service providers, and technical support companies. However, businesses in all industries may use them.

Here are some examples of the key components of an SLA.

Service description

The service level agreement (SLA) specifies the services to be provided. For instance, an IT service provider may have an SLA that includes data storage, service availability, network uptime, or fewer network security breaches.

Performance expectations

SLAs outline the performance standards expected of the service provider. Having these standards in writing holds providers accountable to their agreed-upon service levels and manages client expectations.

Measurement and approval

A service level agreement typically will describe how performance metrics will be measured. Measurement tools, key performance indicators (KPIs), and methodologies will be described in detail. Regular assessments against these measures are important to ensure a provider upholds their end of the negotiated agreement.

Consequences for non-compliance

SLAs outline penalties or corrective actions if service levels fall below client expectations. Possible penalties may include financial compensation, additional free services, service credits, or options to terminate the contract.

Types of SLAs

There are 4 main types of service level agreements.

Customer Based SLA

Also known as an external service agreement or a customer service level agreement, a customer SLA is tailored to each customer’s specific needs. Such service level agreements are typically used for businesses that have highly specific requirements.

Internal SLA

Instead of being between an organization and a third-party service provider, an internal SLA is between departments within the same organization. The purpose of an internal SLA is to facilitate better cooperation across departments.

Service-Level SLA

Service-level SLAs are provided when the service offered is standardized for all customers. These contracts are generally used in industries with highly standardized services, such as web hosting.

Multilevel SLA

When a service provider offers multiple service levels, they may provide a multilevel SLA. These contracts often specify varying expectations for different packages across different price ranges. An SLA agreement of this nature helps ensure that the customer gets their money’s worth.

The Benefits of SLAs

Clarifies expectations

Service level agreements set clear performance metrics and define everyone’s responsibilities. Therefore, the service provider and their client can have a mutual understanding. Ensuring all parties involved know what to expect and how service delivery will occur can also help streamline daily workflows.

Improves service quality

When a service provider signs an SLA, the service provider agrees to maintain set standards. This obligation encourages consistent high performance. As a result, the customer can benefit from a consistently reliable and efficient service level. If the service provider fails, they must compensate their client as per the agreement overview.

Enhances customer satisfaction

Service level agreements bind providers to specific standards. Standards may include appropriate behavior and service availability both of which directly impact customer satisfaction. Therefore, having one is especially important for services that will be used by the client’s own customers.

Facilitates performance management

SLA metrics provide a clear and measurable framework to evaluate provider performance. They may also include business process metrics that ensure certain protocols are followed. Having this clear framework also makes it easier to highlight areas of improvement and implement practical strategies to improve these areas.

Risk management

A good SLA must include clear terms and conditions to reduce uncertainties and prevent misunderstandings. These terms lower the risk of service disruptions and protect all involved parties.