A service level agreement (SLA) is a contract between a company and its customer, where both parties agree on a certain type and quality of service.
SLAs are common in cloud companies, software-as-a-service, e-commerce businesses, and other online businesses.
In this post, we cover a few tips for creating a good SLA that meets the needs of both parties.
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7 Tips for Creating a Successful Service Level Agreement (SLA)
A service level agreement (SLA) specifies a level of performance that a company will provide to its customers. This includes the features, benefits, and functions of a product or service, as well as the other important details, such as the time frame in which those services will be delivered.
1. Understand what SLAs are and why they matter
First and foremost, in order to use an SLA successfully, it is important to understand the purpose of these agreements.
In a nutshell:
- SLAs are agreements between two parties that define the scope of service to be provided, the price point, service level objectives, performance metrics, timelines, and other important factors
- The SLA is the standard contractual agreement in certain industries, such as IT
- An SLA clarifies the expectations of both parties and documents them, which minimizes miscommunications and provides a legal backstop in case of disputes or disagreements
The SLA, in short, is the written agreement that binds both parties to specific standards of behavior. Like employment contracts, they ensure that each side knows what is expected in terms of performance and payment.
2. Create an SLA that meets the needs of both parties
Although it can be tempting to skew SLA terms in one’s own favor, this tactic usually ends up backfiring.
A business relationship, after all, should be built upon transparency, trust, and mutual advantages – and those that are not tend to fare poorly over time.
SLAs should therefore be developed that are fair to both sides, with clear and accessible terms.
3. Negotiate terms if necessary
Providers will often have a standard SLA template that they use for most of their client work.
However, these terms should be open to negotiation, since each partnership and each client is unique. This is especially true for large organizations, such as enterprise clients, whose needs will often vary significantly from company to company.
At the same time, clients don’t want to feel as though they are being pushed into an agreement that doesn’t work in their favor. As mentioned above, after all, a one-sided contract will only sour the relationship over time.
4. Review and adjust when necessary
Technology changes, services change, and relationships change, so it is important that SLAs also keep up with those shifts.
Updating SLAs, therefore, should be done periodically to ensure that they are still relevant and effective.
Ideally, the SLA should cover these reviews and define when these reviews are to occur, who will be included, and other relevant information.
5. Include an indemnification clause
An indemnification clause is a section of a contract that requires one party to cover any damages caused by the other party.
In the case of SLAs, these often refer to damages caused when a provider breaches their end of the contract and fails to provide services.
For instance, if a digital agency’s services fail due to negligence, then that service failure could negatively impact the client’s revenue, their customer experiences, and so forth. In worst case scenarios, such service failures could negatively affect business outcomes, profits, growth, and so forth – which, in turn, could result in lawsuits that the provider must pay for.
6. Use the right type of SLA and include the right components
There are three general types of SLAs:
- Customer-based SLAs, which are designed for a specific customer or group
- Service-based SLAs, which are general SLAs offered to any customers who use a service
- Multilevel SLAs, which are segmented into different levels for the different groups of customers who use a service
Each SLA, regardless of the audience, should cover the same key ingredients mentioned earlier, such as the service level objectives. However, each type of SLA covered here will establish a different type of relationship and treat these components differently.
7. Use metrics that are fair and motivating to each party
Naturally, the KPIs used will depend on factors such as the business one is in and the service one is offering.
That being said, it is important to create metrics that are relevant and useful to both parties. Vanity metrics that only serve the needs of the provider will be unfair to the customer and can ultimately harm the relationship, for instance.On the other hand, metrics that motivate each side to fulfill their end of the bargain – such as metrics that inspire performance and transparency – will help to create a relationship founded on mutual trust and drive revenue growth for both companies.