A Service Level Agreement (SLA) formalises the minimum level of service that a client expects of a particular provider. A contract lawyer typically drafts these agreements, as they constitute a legally binding contract between a customer and their service provider. This article will explore who uses an SLA, its advantages and the key types of SLAs.
Who Uses an SLA?
Many different industries commonly use SLA. Take your Internet service provider as an example of where you might find an SLA. The agreement will outline the standards the provider must meet and what happens when they do not meet them.
When the service provider cannot meet these standards or falls below the expected levels of service, the other party may be entitled to make a claim to be compensated or seek damages.
Another area where SLAs are very popular is in hosting. Suppose your business depends on your website being constantly available to customers. This is common for e-commerce businesses. Here, your hosting provider must agree to 99.99% (or something close to) uptime. Accordingly, your SLA will set this out.
Advantages of Using SLAs
There is a common misconception that SLAs only benefit the customer. However, they can benefit both parties for various reasons, including the following:
- prioritises the customers’ expectations;
- explains each party’s expectations of the other;
- for a service provider, it can limit liability for a failure to meet services levels;
- creates a culture of high-quality services;
- formalises each party’s duties and rights;
- sets benchmarks that each party expects the other to achieve by specific dates;
- encourages the service provider to become more innovative;
- allows customers to compare the services of various competing service providers; and
- gives the customer an easy method for monitoring the performance levels of the service providers.
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Types of SLAs?
There are three main types of SLAs:
- customer SLAs;
- internal SLAs; and
- multilevel SLAs.
Let us explore these in more detail below.
Customer SLA
A customer SLA exists between the customer and the seller. The SLA sets out the agreed level of service the customer expects to receive from the business.
For example, an internet service provider may promise 98% uninterrupted network availability. Suppose the customer experiences network interruptions that result in the agreed service level not being met. In that case, the customer may receive a discount or compensation for the period the service provider did not perform the services to their agreed level.
Internal SLA
Internal SLAs are for internal business purposes. They define requirements and expectations of service levels for:
- internal staff;
- departments; and
- integral business functions.
Internal SLAs can exist for many departments. For example, they frequently arise between a business and its IT team. Companies can also use internal SLAs to measure their internal performance levels or their own network efficiency.
For example, Business X has an in-house IT service desk. Business X has an internal SLA which stipulates to:
- resolve an agreed amount of IT tickets;
- raise response times to tickets; and
- raise the recovery time for service outages for various departments and devices within the business.
KPI metrics usually measure internal SLAs.
Multilevel SLA
A multilevel SLA benefits businesses with multiple end-users or multiple parties involved in the agreement. A multi-level SLA defines expectations between the interaction of customers and internal departments of the company.
For example, Cloud Company X uses a multilevel SLA across its customer service and tech teams. The SLA considers two aspects:
- customer generation; and
- customer retention.
The SLA may require a certain KPI for both teams and encourages communication between departments. For example, the customer service team would pass consumer information onto IT teams to develop the service and drive customer generation while increasing or maintaining customer retention.
What Goes Into an SLA?
An SLA should include all measurable aspects of the relevant agreement between the parties and the metrics to measure them, such as KPIs. Furthermore, it should clearly describe the responsibilities and expectations of either party and explain what may happen if parties do not meet expectations.
Depending on the agreement, SLAs can be changed and updated. The process by which metrics are developed, added or removed should be clearly explained so both parties know their expected service levels.
Key Takeaways
An SLA can help businesses set out expectations of service levels. SLAs can arise between a customer and a business, internally within the business or between multiple parties. The SLA should specify the expectations, how they are measured, and the consequences of failing to meet them. Overall, they can benefit both businesses and customers.
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Frequently Asked Questions
An SLA is an agreement between a service provider and its end user. The SLA’s author depends on the type of SLA being used. Generally, SLAs are written by service providers so that customers can rely on set expectations during their business relationship.
An SLA will constitute a binding agreement between a customer and their service provider when correctly drafted.
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