What Is a Service Level Agreement (SLA)? Definition, Metrics, Processes, and Best Practices
Service level agreements (SLAs) lay down the legally binding obligations on a service provider and its client during the course of their engagement.
A service level agreement (SLA) is defined as a legally binding contract between the service provider and one or more clients that lays down the specific terms and agreements governing the duration of the service engagement – i.e. when the client is paying for said services and the provider is obligated to deliver them. This article explains the key metrics to include in an SLA document and six steps to help set up effective service level agreements. We also discuss seven best practices for authoring SLAs in 2021.
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What Is a Service Level Agreement SLA?
A service level agreement (SLA) refers to a legally binding contract between the service provider and one or more clients that lays down the specific terms and agreements governing the duration of the service engagement – i.e., when the client is paying for said services and the provider is obligated to deliver them.
Typically, an SLA tells you the nature of the services that will be provided, the goals of both parties (the provider and the client company), prerequisites, if any, and the points of contact. It also clearly specifies the course of action in case SLA goals aren’t met.
In IT services, the SLA determines the quality standards that the service provider will maintain. These standards are encapsulated into SLA metrics, which are often used interchangeably with the term SLA itself. For example, suppose a cloud provider could support scalability for the expected volume of resources but couldn’t meet the uptime demand. In that case, it is standard industry parlance to say that they met one SLA but breached another. In reality, an SLA is a comprehensive document that details all the performance standards expected from the service provider, among other things. In everyday conversation, IT service providers are said to meet or breach multiple SLAs.
Apart from this distinction between SLA and SLAs, a service level agreement is a key contractual document that defines client-vendor relationships in the IT world. To understand this better, let us look at three examples.
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3 SLA sample examples to guide you
The following SLA examples from three of the world’s leading technology companies explain what an SLA can look like, its purpose, and its components.
Example 1 – SLAs for Azure Application Insights by Microsoft
Microsoft has separate service level agreements for discrete Azure services, and this SLA example illustrates the agreement for application insights, which is part of Azure Monitor. The key highlights of the document are given right on top, where you will find a description of the service’s functionality, a statement of the version’s applicability, and an uptime guarantee. You will also find hyperlinks to SLAs for related services useful for an Azure client.
SLAs for Azure Application Insights by Microsoft
Source: Microsoft
In the introduction section, Microsoft details the scope of the SLA and situations where it doesn’t apply (e.g., this SLA doesn’t apply to any on-premise software). It also mentions that clients will be eligible for a credit amount if Microsoft cannot fulfill the SLA goals and the notice period to expect before SLA changes.
Finally, the document explicitly lays down the definition that will be considered for an SLA term (e.g., incident or error code) to maintain absolute transparency.
Example 2 – SLAs for Google Workspace by Google
Google has a concise SLA document available to all its Google Workspace clients. To begin with, it specifies the nature of the services, the expected uptime, and recourse in case the company fails to satisfy the terms of the agreement. It is also a good example of how new or sensitive services can be highlighted in your SLA – Google has chosen to specify that Google Voice will be operational within a two-business-day window, only after the client accepts the voice service-specific terms.
SLAs for Google Workspace by Google
Source: Google
Google also explains exactly what it means by common terms like downtime or service credit. Note that all the terms that have a unique definition from Google are mentioned in the title case so that the client is aware of company-specific nuances.
Like Microsoft, Google too lists the version history for its SLA document. It also lays down exceptions and exclusions that limit its legal liability.
Example 3 – SLAs for IBM Cloud (public cloud) by IBM
IBM has a detailed and PDF-based service level agreement for its public cloud service, which you can access from a dedicated documentation portal. Unlike Microsoft and Google, this SLA example extends for 13 pages, primarily because IBM covers multiple services in one document. You will find a table detailing various IBM public cloud services like text-to-speech, analytics engine, a blockchain platform, Cloud Foundry, Informix, etc., and the uptime you can expect with Tier 1, 2, 3, or 4 IBM subscriptions.
SLAs for IBM Cloud by IBM
SLAs for IBM Cloud by IBM
Source: IBM
It also specifies which services are user-managed – i.e., the services for which IBM provides the infrastructure, but the client is responsible for its operations. Exclusions and recourse in case of failure to meet SLAs are also specified. This is also a good example of how client obligations can be detailed in a service level agreement. IBM mentions that clients should provide key information to the provider, including the incident report number, list of servers, appliances, and platform as a service (PaaS) operations that were impacted, and the start and end time of the impact.
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Key benefits of service level agreements
By establishing a comprehensive SLA before starting a client engagement, IT services providers can:
- Set clear and transparent expectations: A service level agreement tells the client exactly what to expect, beyond marketing jargon. For example, a vendor might promise “up to 99.999% uptime,” but the client’s current subscription tier may include support for only 99.9% uptime.
- Strengthen client relationships: There is no sense of unmet obligations. Further, a strong service level agreement inspires more confidence in the vendor’s ability to deliver. This strengthens relationships and also ensures that clients fulfill their part of the promise.
- Address unmet SLA goals: The vendor and the client both know exactly what to do when SLA terms aren’t met. This provides clients with the benefit of credits or any other recourse in lieu of the promised service benchmarks. Vendors can also avoid legal indemnification in the court of law as the failsafe is built into the contract.
- Enable predictability and accurate planning: Vendors can anticipate the service levels and quality that will be expected of them and can plan accordingly. This is particularly useful for custom SLAs. By defining precise service benchmarks in the service level agreement, you will get an estimate of resource requirements, process necessities, costs, and so on.
- Improve internal performance: The existence of an SLA means that you have to monitor and measure if its terms are being met. This gives you valuable insights into employee performance, the efficiency of your processes, and gaps (if any). By striving for 100% SLA adherence, you can improve your organization’s service capabilities.
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5 Key Service Level Agreement (SLA) Metrics
Metrics are at the heart of a service level agreement. They set a quantifiable benchmark that the service provider must meet or exceed. They also make it easier to spot SLA breaches.
For example, the provider might promise a rapid response in case of an adverse event, but it’s only when there is a quantifiable response timeline (e.g., two hours) that clients can be confident about what to expect. While SLA metrics can vary significantly from one industry to another and between organizations, here are the five top metrics to remember.
1. Availability and uptime
Availability and uptime are almost universal metrics for service level agreements. They indicate the time for which clients can expect to access and use the service. For a contact center, the uptime could be 12 hours a day for six days a week. For the cloud, uptime is usually between 99% and 99.999%. In fact, the three SLA examples we cited from Google, Microsoft, and IBM all specify uptime and availability as core metrics.
The opposite of uptime – i.e., downtime – is also an important term. Companies may have their own definition for downtime. For example, Google considers it downtime only when there is more than a 5% server-side error rate.
2. Response timelines
IT service providers in every category typically mention response timelines as a key SLA metric. This is because clients will want immediate action whenever there is an adverse event. However, the provider can respond only if it has sufficient resources available. The expected response timeline metric tries to strike an effective balance so that problem resolution isn’t delayed, but provider resources aren’t stretched. You can mention different response timelines for different subscription tiers (premium subscriptions get a faster response) and based on the urgency of the event.
3. Mean-time to resolution
Mean-time to resolution (MTTR) refers to the average time an incident is resolved, starting from raising a service ticket to the moment when it is closed. While incidents can widely vary during an engagement, you can bucket tickets based on the degree of complexity and measure the MTTR for each. By specifying an MTTR in the service level agreement, you assure the client that someone will attend to their problem and resolve it without undue delays.
4. Defect or error rate
The concept of defect rate can be traced back to the manufacturing industry, where this metric captures the number of defective products as a percentage of the total production volume.
Today, defect or error rates can be useful for measuring quality both internally and with clients. In software testing, for example, you could calculate the defect rate for every 1000 lines of code. In a contact center, the same metric can be used to measure low-quality interactions against the total number of client interactions. Google measures server-side error rates to calculate downtime – this means that when more than 5% of connectivity requests generated by the server are returned, the service is considered to be unavailable.
You can leverage this SLA metric to set quality expectations and inspire confidence.
5. First-time resolution of issues
In addition to MTTR, you can also define service efficacy regarding how many interactions it takes to resolve an issue. Ideally, a non-complex issue should be resolved right at the level 1 or L1 support layer, and it shouldn’t require more than a single interaction. First-time resolution and resolution via self-service can go a long way in improving the client experience.
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6-Step Process to Set Up an SLA
Your SLA set-up process must involve all the relevant stakeholders, factor in performance metrics, and use clear language to avoid confusion. Here are the six steps to follow:
The 6-Step SLA Setup Process
The 6-Step SLA Setup Process
Step 1: Map client objectives against available resources
The client’s objectives or goals to be achieved from your services will determine the ultimate SLA draft. For example, if a client is looking to support its ecommerce website using your cloud services, they will expect close to 100% uptime and problem resolution in less than one hour. Determine client objectives with your unique service proposition, and map it against your internal resources to see how much you can pragmatically deliver.
Step 2: Define your key performance indicators (KPIs) with baselines
The second step is to quantify these objectives using metrics or key performance indicators (KPIs). These KPIs must factor in the industry average as the starting baseline. For example, do most of your competitors offer your >99% uptime? If you are an artificial intelligence (AI) transcription provider, what is the average speech-to-text accuracy rate among key competitors? Ensure that the SLA promises performance at par with or above these baselines so that the client receives a compelling value proposition.
Step 3: Set up monitoring systems and dashboards
You need two types of monitoring systems and dashboards: internal and client-facing. The internal dashboard will monitor service levels and prevent them from dipping below the promised SLA rates. A client-facing dashboard increases transparency and allows end-users to check on service performance even when there isn’t an issue. Tailor your monitoring systems to the KPIs defined in the previous step and set automated alerts as per the baseline.
Step 4: Create documentation and share it with internal stakeholders
Now, you are ready to craft the first iteration of SLA documentation. It will include the following components:
- A description of the nature of services
- Key performance metrics
- Exclusions and exceptions
- Definition of terminology
- Expectations from the client
- Details about client-facing dashboards
- Recourse in case of unmet obligations
Share this draft with all the stakeholders across the service delivery team, the support team, and the legal team.
Step 5: Finalize the draft and share it with the client(s)
The service, support, and legal teams may provide you with feedback on improving the service level agreement. Make the necessary changes, and you will be ready with finalized documentation that can be shared with the client. Ensure that the SLA has been assessed in terms of your service capacity, your client support capabilities, and regional and industry laws before it is published.
Step 6: Incorporate feedback
Finally, the client may want to negotiate the service terms and modify the SLA. This is a vital step when inking custom agreements – for example, when a managed IT services provider starts an outsourcing engagement with a multinational company. Depending on the degree of the changes requested, you may want to reinitiate this six-step process. A major change like increasing the uptime by several percentage points will require you to revisit your resource availability, consult internal stakeholders once again, and create another draft.
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Top 7 Best Practices for a Strong Service Level Agreement (SLA) in 2021
An SLA document is the foundational pillar for successful client-vendor relationships, taking on a new dimension in 2021. Due to the proliferation of digital solutions and the rapid rise of everything as a service (XaaS), strong SLAs are necessary to maintain service quality and support business processes. Here are seven best practices that can help you achieve this.
SLA Best Practices
1. Make sure the SLA goals are SMART
The goals you put down in your service level agreement must be Specific, Measurable, Achievable, Relevant, and Time-bound or SMART. For example, instead of mentioning “industry best AI accuracy,” it is better to specify that you will deliver “speech-to-text conversion for the English language at 76% accuracy.” This avoids vagueness and prevents confusion.
2. Create internal SLAs that reflect client SLAs
Internal SLAs help ensure that the team is on track and you can adhere to client-facing service level agreements as much as possible. For example, if a cloud service provider promises 99.9% uptime to a client, they must monitor all the data center regions being used by the client, their operational conditions, and individual performance.
3. Update the SLA terms and conditions regularly
Service level agreements will change from time to time based on market conditions, industry regulations, and your internal resource availability. It is advisable to specify the notice period clients can expect before SLAs are altered (as in the Microsoft SLA example). You can also maintain a version history so that clients go back and read through past SLAs.
4. Ensure that SLAs are transferable
Transferable SLAs help to maintain brand reputation and client relationships in case of a merger or acquisition. It means that if a different provider acquires your company, they will be legally obligated to keep fulfilling the SLA terms laid down by pre-existing contracts. That way, if you ever decide to reverse a merger or initiate a buyback, those invaluable relationships will remain intact.
5. Test monitoring systems and dashboards before implementing
Monitoring systems and dashboards are indispensable for SLA adherence, as they allow stakeholders to measure performance, detect breaches, and even raise tickets for adverse events. These systems must be rigorously tested before going live. Create a simulated environment where you can play out different service scenarios, various types of issues, and how they are resolved.
6. Incorporate a security clause into the SLA document
Third-party security incidents are increasingly common among enterprises, and service providers may be held liable in a court of law. That’s why it is recommended that you incorporate a security clause, defining the extent to which you take ownership of security and how much ownership continues to rest with the client organization.
7. Beware of the scope of indemnification
Indemnification refers to the efforts you must undertake to compensate for an SLA breach. For example, you may have to offer the client additional credits to compensate for unexpected service downtime. However, there may be further costs arising from the SLA breach, including an impact on the business. Consult with your legal team to limit indemnification scenarios and establish time and monetary caps.
Conclusion: Towards Experience Level Agreements or XLAs
While traditional SLAs measure goals, performance, and compensation based on availability, capacity, and reliability, XLAs go one step further. They capture the end user’s experience and real-world business outcomes that are enabled by the services you provide. While it may increase a vendor’s service obligation, it also cements their role in the client’s business operations and strengthens client-vendor relationships.
You may embrace an element of XLAs into your existing service level agreements by mentioning an end-user satisfaction score that you will strive to achieve. This is, indeed, the future as digital solutions become the backbone of nearly every business process and determine both operational continuity and overall satisfaction.
What are your key priorities when crafting a service level agreement for your clients? We would love to hear about it. Let us know on LinkedIn, Twitter, or Facebook!
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