Why do you need an SLA?

Any business relationship should have a sufficient level of regulation and clearly defined expectations. Relationships between companies and service providers are not different. SLA (Service Level Agreement) is the document that defines the level of service provided by the vendor, the measurable metrics for the service provided, as well as remedies and potential penalties.

SLAs have become really popular in the past decade or so, with the rapid development of IT outsourcing services. As companies outsourced some of their tasks to outside vendors, they wanted to keep control over the quality and protect their reputation and assets.

SLA can be a short (only a few paragraphs long) addendum to the main contract, or it can be a longer separate document. In some cases, the main contract can refer to multiple services, where each separate service is covered by its own SLA.

Why SLAs are important?

SLAs are an important part of any service agreement between two parties. It covers all services that are to be provided in one place. SLAs include expectations regarding reliability, metrics, requirements, and responsibilities. Its goal is to ensure that both sides of an agreement have a clear understanding of their responsibilities.

Without a proper SLA, companies risk that the contract may be misinterpreted, which can affect the quality of service, customer experience and other facets of the business.

Key elements of an SLA

A good service level agreement covers several important parts. If one or more of them are missing, it can negatively affect the whole partnership. These parts are:

Services. The kind of service provided by the vendor. For example, software development, or hosting services.

Measurements. The quantifiable measurement of the provided service. Many hosting and cloud services offer high availability of their services (e.g. their services are available 99.999% of the time).

Intervals. States the interval at which the metric is measured (e.g. every day/week/month).

Obligations. These refer to commitments that both parties have to fulfill, or the SLA won’t be enforceable.

Penalties. These are the penalties for failing to meet the expectations set forth by SLA. Penalties can be presented as a loss of bonus, partial refund, or credit towards further services, depending on the type of contract.

Benefits of having an SLA in place

Signing an SLA with your service provider has multiple benefits, such as:

Establishing success metrics

With an SLA in place, you will have a standard of performance backed by measurable metrics to support them. To maximize efficiency, you should agree on the types of reports and the frequency at which your vendor will provide them.

Provides recourse for non-performance

A proper service level agreement should cover the penalties faced by the service provider in case they fail to deliver the proper level of the service. The very existence of these penalties tends to improve the quality of the service rendered. This part should also cover the process of dispute resolution in case there are performance issues.

Sets clear expectations

An SLA helps to establish clear expectations regarding standards and deliverables. Without it, a company and a vendor could end up having misunderstandings that could lead to negative results. For a client, it provides an understanding of what to expect, so there are no surprises in the process.

Improves the quality of customer service

Established SLA makes service providers more careful when it comes to providing the service. Additionally, you’ll know exactly what the procedures are if something goes wrong. All this drastically increases your experience as a customer.

Provides clear communication guidelines

Without an SLA, the whole process of communication can become rather messy. With a service level agreement, you’ll have a clear understanding of what channels of communication to use (such as email or messaging apps), how often you will meet and in what format, and even what’s the expected response time.

Defines best practices and procedures

This one can be an enormous benefit for vendors. It’s not rare for clients to terminate the partnership with their service provider because they aren’t particularly satisfied with the level of service provided. Smart vendors can leverage this in their SLAs and address the most common pitfalls in the industry. By doing so, SLA can become a powerful sales tool, as potential clients can see that their past issues are already addressed in an SLA.

Having an SLA is a great way to protect both parties and ensure their relationship is productive. Clearly defined expectations and obligations are vital if you want to have a lasting partnership with your service provider. Given the importance of SLAs, many vendors are willing to create one for their clients. Be aware, though, that having an initial SLA might not be enough. As your company changes and develops, your partnership with service providers is likely to change too. Your service level agreement should reflect these changes.