Definition: What Is an SLA?

A service-level agreement (SLA) is a contract agreement that defines the terms of service between a vendor or service provider and its client. It is a requirement in any IT vendor contract. It’s important to understand that SLAs also include remedies or penalties in the event that the predefined service levels are not met.

While these contracts are often between organizations, they can also exist between departments within an organization. You can view the SLA as a way the service provider defines the standard of service it plans on delivering to their clients.

Why Is a Service Level Agreement Important?

While SLAs give the service provider a way to align what they can deliver with client expectations, there are a few additional purposes that service level agreements serve:

An Atmosphere of Mutual Trust and Understanding

SLAs ensure both parties are accountable, honest, and on the same page.

From a service provider’s perspective, the SLA details how the service will be delivered and fits the client’s business value and requirements. Thus, it is important to include the responsibilities and expectations relevant to the service standard and legally vet the document. Legal vetting ensures no gray areas and eliminates any possible misinterpretation of service standards to be delivered.

From a client’s perspective, the SLA ensures they get what they are paying for and that the agreed-upon standards are delivered. The document should ideally be reviewed by legal counsel and contain a restitution clause or other remedy that outlines what would happen during a breach.

This arrangement always creates an atmosphere of mutual trust and understanding between both parties.

Improved Customer Experience

Without an SLA, there tend to be no defined expectations, which puts both SLA parties at risk. Clients may have unrealistic expectations or continue to demand more than they have agreed to pay. At the same time, vendors may be more concerned with making a profit than providing high-quality service. For clients and vendors, SLA serves as a legally binding safety net to ensure that situations like this don’t occur.

Better IT Vendor-Client Relationships

SLA has a way of looking out for everyone’s interests and resolving problems before they happen. This is especially important when establishing a trusting, long-term relationship. In addition, an SLA promotes transparency by specifying the objective, the scope of the required services, and each party’s obligations using quantifiable metrics.

Accepting an SLA’s terms reduces the likelihood of a disagreement, which is a step toward a mutually beneficial relationship.

Defined and Clear Expectations for the Internal Team

SLAs define a clear goal for your team. For starters, your internal team knows what is expected of them and can work on how to meet these standards. For example, what ticket or client should they prioritize? What are the specifications for each client? What are the thresholds for various tasks or parameters?

Thus, it is best to base expectations on realistic, clearly stated, and quantifiable metrics. Doing this promotes efficiency and allows your team to meet clients’ expectations.

Who Needs SLAs?

SLAs are used by companies in various industries before they do business with their clients—these can be internal (between departments within an organization) or external (another organization).

The use of SLAs cuts across the IT, internet, software development, insurance, telecom, banking, engineering, and cloud computing service provider industries. Basically anybody who wants to streamline service management, avoid arbitration, and maximize the value of their business relationships when working with clients or vendors.

SLAs vs. KPIs

SLAs refer to the terms of the agreement between the service provider and its client, while key performance indicators, or KPIs for short, are the metrics used to measure impacts or performance.

In this situation, both parties will use KPIs to evaluate and adjust the terms of the SLAs against the agreed specifications. The similarity between SLAs and KPIs lies in the fact that they’re both used to set clear expectations needed to meet the organization’s strategic objectives.

Who Provides SLAs?

The vendor mostly provides SLAs. This way, the vendor can create the SLAs to fit their client’s specifications and best interests. This is why a vendor can have various SLAs that reflect multiple prices and specifications for the same service.

However, though the vendor creates it, it is crucial that the client reviews and modifies the SLAs when terms and conditions are unfavorable or unclear, preferably with their legal counsel. This will help prevent potential issues and take care of any concerns or gray areas.

What Are the Three Types of an SLA?

Though SLAs serve the same purpose, they are categorized into three types based on their specific use cases:

Customer-Based SLA

Customer-based SLAs are simply SLAs between the service provider and the client. It is also the most popular SLA out there and revolves around providing all the relevant services to fit a single customer’s needs.

For example, an agreement between a SaaS such as Sematext and a third party, like Facebook, to utilize Sematext’s API monitoring tool to keep track of the functionality and availability of their web services and APIs.

Internal-Based SLA

Internal-based SLAs are SLAs between departments within a company. This SLA helps govern how internal processes within the company operate and can be used to set standards or goals. This SLA is also a win for your clients since goals like shorter response times can get them more satisfied clients.

For instance, an agreement between the marketing or developer relations team and the support team to ensure the performance of one of Sematext’s SaaS products doesn’t fall below a specific threshold.

Multilevel SLA

Multilevel SLAs are SLAs that are customized to fit the specifications of a company’s needs. The service is split into various packages, each having its own specifications or a combination of various products or services to appeal to different client groups.

Here, a service can have different prices; however, each package has some exclusive features or offers. They often come as freemium, enterprise-level, or a bundle of multiple packages. For example, a Sematext SLA offering for Sematext Cloud, the cloud monitoring platform, and Sematext Enterprise, the on-premise performance monitoring solution.

Common Components of a Service-Level Agreement

While there is no standard outline for what every SLA should include, there are a few components every SLA should have, regardless of the industry or type. Here are some of them:

Objectives

This is a fundamental part of the agreement because it provides a general introduction of the service to be delivered as well as the parties involved. It also talks about the aim of the SLA.

Services Description

This section describes each service in detail. Here, questions about the circumstances under which it works, supported technologies, maintenance, dependencies, format, operation hours, and turnaround times for each service in the SLA are answered.

Service Performance

The expected standard, threshold, KPIs, and metrics are clearly defined to measure the service level. This is very important because conflicts and ambiguity can arise if this section is not carefully defined. It is also essential that workload be factored in, as a change in workload can affect even the best standards.

Points of Contact

This section is all about customer support in the SLA. It tells every party who is responsible for what service and who should be contacted if there is an issue. The channel through which contact can be made would also be addressed here.

Risk Management

This section is essential because it identifies and treats loss exposure to any uncertainty for your engineering and financial investment in the SLA. Thus, it is important to have robust risk management and disaster recovery processes.

Compensation

Here, the document talks about how both parties will handle a breach or violation of the SLA contract. The terms “SLA breaches and violations” refer to instances where one or both parties fail to adhere to or fully meet the goals, rules, or specifications outlined in the SLA. Again, this can help avoid any long legal battle between both organizations if the compensation is clearly stated.

Review and Change of Terms

The key to ensuring that your SLAs work and are kept up to date lies in the organization’s change management process. You create an SLA and use it, but you need to review it again in the future. This could be because the price, KPIs, or even the workflow process stated earlier need to be reviewed. This section defines how both parties can initiate the change of earlier established terms. It is always best to do this routinely.

Termination and Cancellation Terms

This session states the circumstances under which either party can terminate the SLA agreement and when it expires. It’s also recommended to include information on the notice period and how to initiate an urgent termination in the event of an unforeseen circumstance.

Signatures

Every party involved must sign to show that they agree to the terms defined in the SLA. This would make the document legal and valid because, without a signature, it isn’t easy to prove the intent to execute.

Service Level Agreement Examples

Here are some examples and templates of what different types of SLAs look like:

PandaDoc SLA

PandaDoc is a document automation SaaS company that offers companies and customers built-in electronic signatures, workflow management, and document building. The PandaDoc SLA template also used clear and concise language to outline its expectation to the client. This SLA is a simple example of a customer-based SLA; thus, it will include the following:

• The responsibility of both parties: Here is the service description and how vendors can modify SLA. The client would also inform the vendors if there is any service outrage on their part. How the vendor will monitor performance was also stated.
• The availability and performance of the service provided: Under the service level section of the SLA, the vendor guaranteed the peak hours and uptime of 99% during peak hours.
• Detailed compensation: This includes how service credit will be calculated and paid.

Giva’s Help Desk SLA

Giva is a help desk and customer service or calls center software architected for the cloud. Besides having an SLA for clients interested in their services, Giva has one internally for departments within the organization. The goal is simple, to provide support service at an optimal first-level support service to all departments.

This Giva help desk SLA is a simple example of an internal-based SLA and clearly states the following:

• A definition of various services and how they will be handed: In this SLA, services were divided into first-level problems and a single point of contact with the respective department. You should also mention the service period.
• Service Reliability and technical support: The IT Help Desk employees provided information about the service hours, the number of customer support agents allocated to handle the call, the support channel, and who to call if there are any issues.
• Expected service performance: Under the response time, how vendor stated how they would prioritize issues and calls along with how each service category is determined.

Microsoft Azure SLA for Cloud Services

Microsoft Azure is a cloud computing platform with an online portal that allows clients to access and manage every cloud service and resource provided by Microsoft. There are over 50 such services within over ten categories.

Microsoft Azure SLA started with the categories of the services. The sub-services followed this under each category due to the many available services. The SLA also had the following:

• The Objectives of the SLA: The vendor here clearly stated their commitments for uptime and connectivity and how clients can learn about their uptime guarantees and downtime credit policies
• Service performance: Vendor guarantees 99.9% uptime for services like the Microsoft Genomics service.
• SLA details: This should include the definition of terms, monthly uptime calculation, and service levels and credits. The service level for each service and plan, like the tier, basic tier, standard tier, and Premium Tier deployments within each region.
• SLA summary for Azure services: A summary page with a list of every service was created because there are so many services accessible.
• Detailed licensing and change process: A 90 days notice change process and service licensing resources for each service in the SLAs were mentioned.

How to Check Service Levels?

Clients should implement SLA monitoring to measure, prioritize, and analyze the KPIs associated with the service being delivered by the vendors to track the service levels against the agreed standard. If they don’t monitor their SLAs, they might be unable to hold vendors accountable and claim compensation or remuneration fees legally.

From the vendor’s perspective, SLA monitoring makes troubleshooting performance issues easier]. Using historical data, they can assess performance against each target over time and establish the team’s success rate in exceeding client expectations.

You can check service levels by either having access to monitoring reports provided by the service providers of all signed SLAs or using third-party tools that help you monitor and set up SLA-focused alerts. These solutions feature out-of-the-box and/or customizable dashboards that display historical and real-time SLA performance data. This makes it easier for you to identify issues, trends, and patterns.

SLA Metrics to Monitor

The service level of SLAs is measured using metrics, or KPIs. These metrics should be realistic and easy to follow since the vendor will be held accountable for them. However, it is also important to know that the metrics depend heavily on the goal of the SLA.

However, here are some key SLA metrics that everyone should monitor:

Service Availability

This is simply the percentage of time an instance of the service is up and returns with the expected response. When dealing with service availability, factors such as uptime, data center resources, and availability come into play.

This metric is really sensitive because a drop in service availability can lead to a loss of revenue for your clients.

Response Time

Response time refers to how long it takes for a server to respond to client’s request. The lower the response time, the better the user experience.

Response time can also refer to how long a vendor spends to respond to an incident regarding their services, which can be effectively measured using these metrics:

• Mean time to resolve – How long did it take to fully fix or resolve the problem?
• Mean time to recover – How long did it take to recover from a service outage?
• Mean time between failures – How long is the interval between failures?

Response time can be checked with additional context by using real user monitoring to see how long a user interacted with the service. Logs and infrastructure monitoring can also be used to determine what happened.

Errors and Defect Rate

This is the percentage of errors in significant deliverables. This metric tends to cut across every other metric because it can mean errors regarding various functionality, incomplete backups, production failures, or even failed resource requests.

The higher the frequency, the more prone you are to downtime and terrible user experience. It would also be great if one could find out which errors are reported and how severe they are.

Technical Quality

This metric measures the technical quality of the services. It is based on the underlying technologies and the vendor’s compliance with standards. Factors such as standards compliance and quality acceptance criteria are considered.

Security Metrics

Here, clients want to keep track of the security breach or incident prevention procedures implemented. This is particularly crucial for SLAs in the financial, software development, banking, insurance, and telecom industries.

To give clients an overview of security with the vendors, security measures such as anti-virus updates or metrics such as the number of unclosed vulnerabilities and patching frequency should be stated. However, it is important to note that all these depend on the potential severity of the vulnerability.

How to Choose the Right Metrics

To deliver high-quality service performance it’s crucial to monitor the right SLA metrics for your use case. Here are a few factors to help you choose:

• Focus on the SLA and business goals. Talk to your clients to learn the KPIs that might capture their expectations and determine what is important.
• Establish a baseline using the available historical data. It is important to understand that the baseline should be reviewed regularly and that the SLA review and change section should clarify that.
• Use metrics to drive the desired action and advance business objectives. This would ensure the performance goals are achieved.
• Always use metrics that are simple to gather, realistic, accurate, measurable, and customer-focused. The more complicated the monitoring, the less likely it is to work.
• Less is more. Although you might want to monitor and measure everything, it’s crucial to avoid going overboard.

Indemnification Clauses

An indemnification clause is a clause found in an SLA that absolves the other party or third party of any responsibility to pay for any liability resulting from a breach of contract. The vendor is usually the “Indemnitor” in these clauses and thus takes full responsibility.

While this might sound one-sided, it provides a form of assurance to the client. The indemnification clause also often requires the service provider to pay the client any litigation costs incurred because of this SLA violation.

What Happens if the Provider Doesn’t Meet the Agreed-Upon Service Levels?

The compensation section of a SLA includes penalties bound to the service providers whenever the predefined service levels are not met. Organizations use this section as a way to hold vendors accountable and to ensure long-term engagement with vendors. Thus, it is crucial to define this clearly in the document.

Additionally, it might also include:

• A transition clause in the SLA in case they want to change their service providers, as doing so alone can be a complete hassle.
• A force majeure clause that excludes failure to meet service level due to events beyond the vendor’s control.

Service Level Agreements Penalties

SLA penalties are implemented when the terms of the SLA are violated. The strategies employed by companies in this situation vary depending on the contract and include the following:

• Financial or monetary penalties: In this scenario, the vendor reimburses the client with a specific percentage or amount specified in the contract.
• Service credits: The client is reimbursed not strictly with money but rather with a financial incentive or credit to cover the expense of future work that needs to be done. Some organizations don’t believe this to be sufficient because there are already doubts about the vendor’s capacity to maintain service quality and performance, especially since the vendor couldn’t handle them the first time.
• License extension: Here, there is an extension of the license term or additional services such as free support are provided. Similar to service credit, this punishment is occasionally deemed insufficient.

Some organizations employ a combination of these penalties, but whichever one is chosen needs to be clearly stated in the service level agreement.

Earn Backs

Earn backs are the service credits vendors get back if a specified level of performance is achieved for a certain amount of time. They have become a regular component of SLAs due to the rising rate of outsourcing and client service credit requests. It is also important to know that earn backs are best incorporated into SLAs from the beginning of their drafting to prevent distrust.

How Often Should You Revise Your SLA?

Reviewing your SLA is a good strategy because these changes are crucial to keeping your SLA successful and ensuring that the client’s expectations are satisfied. It also keeps everyone safe and prevents any SLA violations, which is in the best interest of all parties.

However, how frequently one should revise the terms of the SLA depends on several factors, including:

• If there has recently been a significant change in the technology environment, company needs, or model.
• The organization’s size; larger organizations typically evaluate and revise their SLAs more frequently.
• Whenever the workload process or expectations change.
• When KPIs need to be added or adjusted.
• When there is an update in the vendor’s offerings.

SLA Best Practices

There are a few SLA best practices to follow to make sure both you and the client get the most out of the SLA.

Create Realistic and Specific SLAs

SLAs with ambiguous and unreliable metrics give room for misinterpretation. Thus, when drafting your SLA, use SMART metrics—specific, measurable, achievable, relevant, and time-bound. This also reduces the chance of SLA violations, allows you to measure success effectively, and makes it simple to manage everyone’s expectations.

Reduce Complexity by Breaking Down SLAs

To manage your SLA properly, you should create different SLAs for every service and region instead of a complex single SLA covering every service. One SLA for everything makes it difficult to update without completely revising the document and makes it challenging to have metrics that can ensure good service delivery.

It also addresses distinct needs and simplifies commercial relationships with your clients.

Revisit, Review, and Adjust SLAs Periodically

Legal disputes and SLA penalties result from ambiguity. Still, a thorough assessment of an already-drafted SLA can ensure that both metrics are satisfying expectations and the growing business landscape. Therefore, revising and adjusting SLAs should be done periodically, especially when changes that affect clients’ expectations, such as uptime, are updated.

Align SLAs to Clients’ Expectations

Picking the right metrics and revising them periodically is not enough. Your metrics must first align with your client’s expectations and not your business goals. Their expectations should serve as a benchmark for your SLA and establish the rhythm of your collaboration, as this will prevent miscommunication.

SLA Challenges

While it is in the interest of the service provider and client to establish clear SLA terms, there are some challenges.

Updating and Revising SLA

SLA terms need to be changed for several reasons. However, since it was initially customized to fit the client’s needs, revising and updating the SLA would require looking at new metrics and writing custom codes or queries that fit this new direction. This process could take days.

Tracking SLA metrics

Tracking your SLA metrics is challenging, especially because data collection can be tricky. It also often requires custom code to be written. Luckily, third-party SLA monitoring tools are available that make the process less painful.

Reporting Metrics

There are instances where the terms outlined in the SLA are not met due to problems on the client’s end, such as technical or infrastructure issues. This tends to make it hard to report metrics effectively because you can’t hold the vendor responsible for this.

SLA Monitoring with Sematext

Sematext Synthetics is a synthetic monitoring tool which you can use as an SLA monitoring tool. With Synthetics, monitoring the websites tied to your SLA is as simple as creating monitors for them and pasting in the URLs which you want to keep an eye on.

Metrics such as response time and service availability are available out of the box and automatically displayed on the overview page containing the various monitors you create.

Other metrics, such as mean time to recovery (MTTR) and mean time between failures (MTBF) can be inferred by consulting the run results for each of your monitors.

Sematext is a tool that helps foster trust between service providers and their users. To provide further transparency and share information with one’s users, a service provider can also create status pages, where the availability and response times of their chosen Synthetics monitors will be displayed for the users to review at their leisure. An example of Sematext’s EU status page is shown below.

Service providers can also use other Sematext offerings such as Logs and Infrastructure monitoring in order to identify and solve problems before they negatively impact their customers and breach the agreed-upon terms in the SLA.

Setting up monitors for your websites takes less than five minutes, and there is a 14-day free trial with no credit card information required, so that you can try out Sematext with no risk. Watch the video below to see the full list of features Synthetics has to offer or simply sign up and discover them yourself.

Sign up now, and feel free to check the documentation for more information on the various features Sematext has to offer.

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