Legal 101: Service Level Agreements explained
What is a Service Level Agreement?
Chances are, every one of us has signed up to a Service Level Agreement or SLA at some point. Their a near ubiquitous part of tech contracts, helping to keep technology providers accountable for reliable delivery of their platforms and services.
In short, SLA is a formal contract between a service provider and a client that outlines the expected level of service. SLAs define performance metrics, response times, resolution times, and penalties (or credits) if these standards are not met.
For example, a cloud computing provider might guarantee 99.9% uptime, ensuring that their service is available nearly all the time. If they fail to meet this threshold, the SLA may require them to compensate customers with service credits or refunds.
Key Components of a SLA
An effective SLA should include the following:
Service Scope & Responsibilities: Clearly defines what services are provided and what is outside the scope.
Performance Metrics: Specifies key performance indicators (KPIs) like uptime, response times, and system availability.
Issue Resolution & Support: Outlines how support requests are handled, response times, and resolution deadlines.
Penalties & Remedies: Details consequences for failing to meet service expectations, such as financial penalties or additional support.
Review & Updates: Specifies how and when the SLA will be reviewed and updated to stay relevant.
Why SLAs Matter
SLAs play a crucial role in building trust, accountability, and transparency between service providers and clients. They ensure:
Clear expectations: Both parties understand what to expect, avoiding misunderstandings.
Risk management: Helps mitigate risks by defining actions in case of service disruptions.
Customer satisfaction: Ensures reliable service, leading to better customer relationships.
Performance measurement: Helps evaluate the effectiveness of a service provider.
Types of SLAs
SLAs can be structured in different ways based on business needs:
Customer-Based SLA: Tailored for a single customer covering all the services they use.
Service-Based SLA: Standard agreement for all customers using the same service.
Multi-Level SLA: A layered approach catering to different business units, customers, or service providers.
Negotiating SLAs
As a customer of a SaaS or other standardised product or service, it’s often not possible to negotiate amendments to the SLA, as it’s not possible for providers to agree to different service levels for individual clients. However, you may be able to negotiate service credits, termination or suspension rights or other protections for you if service levels are me.
As a service provider, while it sounds simple, you must ensure that you can actually meet the service levels you commit to. A lot of start ups will just use the SLA of a much bigger company without amendment, and commit to service levels that they’re not in a position to provide. Service level failures can be costly, particularly if you need to provide refunds or service credits as a result.
Similarly, your SLA should always be revised if you expand into a new jurisdiction. Are you still able to commit to the response and resolutions times in your SLA if your new clients are in a different timezone to your customer support team? You can do a separate SLA for each country, or at a minimum, update your SLA to reflect the lowest position you can offer across your customers.
Final Thoughts
SLAs are more than just contracts; they are essential tools for ensuring service reliability and accountability. Businesses that implement well-structured SLAs can expect improved efficiency, stronger partnerships, and enhanced customer satisfaction.
At Hemisphere Consultants, we help organisations develop and manage effective SLAs that align with business objectives. Need expert guidance on SLAs? Contact us today.