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What Is a Service-Level Agreement?
A service-level agreement (SLA) is a contract between a provider and the end user that states the level of service that the customer should expect from that service provider. That said, they also serve a company's internal operations as well. They're frequently used when a company is signing up new customers for a service.
In the event that the service-level agreement is between the marketing and sales departments, the SLA will detail the company's sales and marketing goals, such as the number of leads it intends to generate monthly and the action that the sales department will take to support the marketing department's efforts.
Why Service-Level Agreements Are Important?
A service-level agreement is important because it:
- Protects both parties: The SLA sets standards for the service, ensuring both the service provider and end user are on the same page with expectations. By creating clear, measurable guidelines, the end user knows exactly what to expect and what the responsibilities are for everyone involved.
- Provides recourse for unmet expectations: The SLA provides specific consequences for what will happen if a service provider fails to meet its obligations to the end user. Without the SLA, it's unclear what will happen if one or both parties fail to meet expectations. With a service-level agreement in place, there is transparency about what the targets are for each of the service levels and what will happen if they're unmet.
- Gives peace of mind: The SLA gives the end user peace of mind knowing they can hold their service provider accountable for the service they committed to at the time of the agreement.
Types of Service-Level Agreements
There are three basic types of service-level agreements:
Customer Service-Level Agreement
This type of SLA is between a business and a customer. It's also referred to as an external service agreement. It includes:
- Specifics of the service the customer will receive
- Conditions of the service availability
- Standards for the time windows of each service level, if applicable
- Responsibilities of each of the parties
- Escalation procedures
- Cancellation terms
Internal Service-Level Agreement
This is when a company has a service-level agreement in place internally, between its marketing and sales departments. For example, the sales team may have a goal of earning $10,000 in sales per month. If they know that each sale is worth $500 and they know that they have a closing rate of 20%, then they know they need to receive at least 100 qualified leads per month from the marketing department.
The two departments could put an SLA in place where the marketing department commits to delivering a minimum of 100 leads each month by a certain date. Part of the agreement could include sending weekly reports to the sales department to ensure the teams are on pace to hit their monthly goals.
Multi-Level Service-Level Agreement
This type of SLA outlines what's expected of the different parties when there is more than just one end user or one service provider. You could use this as a way to support customers or as part of an operations strategy. For example, your marketing and sales departments could also include the customer service team as part of the SLA to incorporate customer retention into the agreement.
What Is Included in a Service-Level Agreement?
Here is a look at the different information that goes into a service-level agreement:
- Summary of agreement : Your SLA typically contains a summary of the service, who is receiving the service, and how the success of the service is going to be measured.
- Goals of the parties: For an external SLA between a business and customer, the goals that are included in the agreement will typically be those of the customer. Your company should include measurable goals that it can regularly attain for its customer. If the SLA is internal, then the goals for all parties should be outlined.
- Description of what's needed to reach goals: The SLA should include descriptions of what each of the parties in the agreement need to achieve their goals. This could include things like technical maintenance, consulting, or reporting. If you're putting together an internal SLA, it should describe what the different departments need from one another to reach their goals.
- Reporting procedure: The SLA should include how and to whom any problems should be reported and what the reporting process should be.
- Consequences: The SLA should always state what the consequence will be if the specified goal isn't met. As an example, your company could issue service credits or other forms of compensation.
- Termination circumstances: Finally, the SLA should contain formal conditions for which the parties could terminate the agreement in pursuit of a better one. This could happen to an internal SLA, for example, if the SLA you put together isn't getting the buy-in you need from all parties involved or if you're frequently missing those goals.
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Service-Level Agreement vs. Key Performance Indicator
A key performance indicator (KPI) is a tool for measuring how well a business is performing in light of its strategic goals. A KPI can help a business identify areas where the organization is veering off track from its primary objectives.
The SLA outlines what the customer will receive and what they should expect from their service provider. It does, however, include measurements for evaluating the service provider's performance, which is where there can be overlaps between KPIs and SLAs. A service-level agreement defines KPIs in order to measure service performance. This means that, in the end, the metrics provided by the SLA become KPIs that the business will monitor and report on as measurements of success.
Choosing Metrics for a Service-Level Agreement
It can be challenging to choose metrics that are fair for all parties involved. However, it's best to choose performance metrics that:
- Are within the control of the service provider.
- Can be collected easily and accurately.
- Can be collected automatically, if possible.
It's also important to specify a reasonable baseline for the metrics, or a number that the company commits to hitting at the very least. This baseline can be shifted as more data is collected, and the service provider better understands what's possible for the client.
Service-Level Agreement Templates
Here are some service-level agreement templates that you can use to define the service you will offer end users:
- Small business service-level agreement
- Business analysis service-level agreement
- Business cloud service-level agreement
- HR business service-level agreement
- PandaDoc service-level agreement
A service-level agreement is essential for protecting a company and ensuring it maintains a good relationship with end users. By reaching a clear understanding of what standards are important and what the consequences will be if those standards aren't met, you can ensure that the relationship will be positive for all parties involved.
It's also a good idea to review your SLA as your business changes and grows, as the SLA should reflect its evolving needs and capabilities. If you need help creating a service-level agreement or would like to revisit one that you currently have in place, Contracts Counsel can help. We are happy to connect you with a fully-vetted lawyer who can help you create or review your service-level agreement. Contact us today to get started.
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