Service level agreements (SLAs) are a mutually agreed upon contact between a service provider and its clients documenting the services that will be furnished and the quality, availability, and responsibilities involved. Whether you partner with managed service providers (MSPs) to purchase SaaS products or both, knowing how to negotiate favorable SLA terms is crucial for business success.

What is the Purpose of SLAs?

Service level agreements (SLAs) are the backbone of relationships between service providers and clients. They outline the terms, conditions, and expectations surrounding the services being provided in quantifiable terms. Their primary purpose is to clearly understand the services offered, the expected performance level, and the responsibilities of both parties involved.

SLAs act as a framework for service providers to define their obligations and commitments to clients. By specifying metrics such as response times, uptime percentages, and resolution mechanisms, they ensure that vendors deliver consistent and high-quality services. This clarity helps service providers manage client expectations effectively and provides a basis for measuring their performance.

On the other hand, SLAs offer clients a sense of security and assurance regarding the services they are investing in. By delineating service levels, expected outcomes, and remedies for breaches, they empower clients to hold their service delivery partner accountable.

SLAs also give clients benchmarks against which they can evaluate performance and determine if the services align with their business needs.

Key Components of an SLA to Include 

While the exact SLA content may vary from industry to industry, SLAs will mandatorily include a few components depending on the size of the enterprise client. These are: 

• Service description: This section outlines the services covered under the agreement and any exclusions or limitations.

• Service level objectives (SLOs): It outlines the measurable goals and performance targets you commit to achieving. This may include metrics such as response times, uptime percentages, and resolution times.

• Measurement methods: This may involve tools for monitoring system uptime, response times, throughput, and other relevant performance indicators – as well as the owners in charge of measuring them.

• Responsibilities and roles: The SLA defines the roles and responsibilities of both parties involved in the agreement. It specifies the tasks, obligations, and contact points for addressing service-related issues and escalations.

• Incident management and escalation procedures: What happens when service levels aren’t met? The SLAs must define the expected severity levels of incidents, escalation paths, and the roles and responsibilities of personnel involved in the resolution process.

• Root cause analysis refers to processes for identifying, documenting, and resolving underlying problems that contribute to service disruptions or degradation. It also includes systems for implementing corrective actions to prevent recurrence.

• Reporting and documentation: SLAs specify the frequency and format of performance reports for clients. They define the content of reports, including detailed metrics, trend analysis, and insights into delivery achieved and compliance with SLA targets.

• Service credits and remedies: One key benefit of SLAs is that they define the remedies and penalties for failing to meet SLA targets. Clients are aware of provisions for service credits, refunds, or other compensatory measures, and vendors can prepare accordingly.

• Change management: Changes in service delivery terms are inevitable for long-term partnerships. Therefore, SLAs also outline how to assess the impact of changes, obtain client approval, and implement changes in a controlled manner to minimize disruption to service delivery.

6 Types of SLAs 

The most common types of SLAs used in enterprise environments are:

1. Customer-based SLA

This type of SLA is customized to meet individual customers’ or customer groups’ specific needs and requirements. The vendor establishes unique service levels and performance metrics based on each client’s distinct needs and priorities. A good example is the SLA offered by digital marketing agencies, where the expected outcomes vary from one client to another.

2. Service-based SLA

With this type of SLA, the vendor defines standard service levels and performance targets applicable to a particular service or group of services. It provides consistency in service delivery across client categories or classifications – focusing on the quality and reliability of offerings. Software as a service (SaaS) platforms often use this type of service level sgreements, with different metrics from different components of their offering – for example, a VoIP vendor providing calling, SMS, and video.

3. Multi-level SLA

You can implement a multi-level SLA when you offer services through multiple tiers or pricing plans. This structure allows you to define different service levels and performance metrics for each level, catering to the diverse requirements of clients with varying service needs.

4. Underpinning SLA (USLA)

An underpinning SLA is an agreement between you and third-party suppliers or vendors that support delivering your services to end-users. It is a critical component of the software supply chain. It establishes these external providers’ service levels and responsibilities and ensures that they align with your own SLA commitments to the end user.

5. Operational level agreement (OLA)

An OLA defines the inter-departmental responsibilities and service levels within the vendor’s organization required to support the delivery of services covered by the client-facing SLA. It outlines the coordination and collaboration needed among different internal teams or departments to meet service commitments effectively.

6. Corporate SLA

A corporate SLA establishes overarching service levels and performance standards for your organization. It reflects your commitment to delivering consistent, high-quality services across all business units and offerings. Companies that follow a shared services model employ this type of SLA to guarantee delivery consistency.

Negotiating SLAs: The Client Playbook 

Enterprise leaders must conduct a thorough analysis of their business needs and operational requirements to secure favorable terms. Dive deep into the specifics of the services you seek. You can refer to historical trends to extract the critical performance metrics and outcomes that align with your strategic objectives.

During negotiations, leverage your industry expertise to drive the conversation toward achieving tangible results; some companies hire domain-experienced consultants to guide this phase. Advocate for clear and measurable performance targets that reflect the services’ true value proposition.

Ensure that the SLA encapsulates your expectations regarding uptime, response times, and resolution procedures, leaving no room for ambiguity or misinterpretation.

In any negotiation, beware of overly optimistic promises or unrealistic benchmarks that could strain the service provider-client relationship. Remember, risk is inherent in any vendor agreement, so advocate for a balanced approach that acknowledges your vendor’s capabilities and constraints while safeguarding your organization’s interests.

Finally, scrutinize the SLA fine print precisely, guarding against vague terminology or loopholes that may leave you vulnerable to service disruptions or disputes. It should define clear escalation pathways and mechanisms for enforcing compliance with the agreed-upon terms. Help from legal counsel may be recommended for high-value, long-term agreements.

The Undeniable Impact on Business Relationships

Service level agreements act as a compass navigating the volatile waters of service delivery. They set the course for performance standards, and establishing these benchmarks ensures both parties stay on the same page. The impact of service level agreements extends beyond operational continuity to strategic alignment.

However, its impact lies in fostering resilience and adaptability when facing challenges. In an unpredictable business landscape, SLAs provide a framework for navigating change, accommodating shifting priorities, and mitigating risks.