What Is An SLA? Types, How to Write One, and Examples

Service providers have long struggled with the ever-changing rules of service level agreements.

Whether it’s field service companies like plumbing and heating, fire and security, maintenance businesses or managed IT service providers, they’ve all had to deal with an SLA at one point or another. However, most of the confusion stems from a few questions which we’ll deal with in a second.

Keep on reading to find out more about what service level agreements are, what you need to know about SLAs as a provider, the biggest challenges in SLAs, and the marketing opportunity you have with SLAs.

An easy example would be to look around your own office building. You should be able to see a few smoke alarms, fire extinguishers, and emergency exit signs. Before starting work, they’ve most likely reviewed and signed a fire and security service-level agreement with the facilities management department, in addition to a contract of employment.

The SLA describes how they’re under obligation to check the installation on a yearly or quarterly basis. In the case of a malfunction, it’s their responsibility to fix any issue in an agreed amount of time. 

Why is SLA important?

A service level agreement or SLA is used in different industries, including technology, because of the several benefits it offers to vendors, companies, and teams. An SLA is important because it:

• Sets clear expectations along with service terms and conditions that prevent future misunderstandings between customers and service providers. 
• Provides quality assurance by defining quality standards a service provider must meet.
• Outlines remedies which can be helpful while addressing events like data loss, downtime, and service disruptions. 
• Facilitates continuous improvement by letting service providers and organizations share feedback and improve opportunities with each other.

Both an organization and a service provider must take part in the SLA draft creation process to fully realize the benefits of an SLA.

There is a simple reason why service level agreements are not included in a standard contract of employment for most service providers. Making changes to a contract that’s already been signed can be a costly affair. Not to mention time-consuming.

Everyone has a different idea about what good service looks like but an SLA makes the voice of the customer ring loud and clear: that’s the quality standard they expect. Despite the flexibility it affords both parties to negotiate rights and responsibilities, breaching a service level agreement has similar consequences to breaching a contract. This is why it’s vital that service providers pay just as much attention to keeping their SLA compliance up-to-date. 

What are the three types of SLAs?

You'll come across three types of SLAs: customer, internal and multi-level service-level agreements.

• A customer service level agreement or customer-based SLA outlines the services a service provider will provide to an internal or external customer. This is also known as external service agreement and created only after negotiation between a service provider and a customer. 
  
  A customer SLA contains expected service details, service availability provisions, responsibilities of both parties, escalation matrix, cancellation terms, and penalties in case of inability to meet SLA metrics. 
  
  For example, a business onboarding an accounting tool may negotiate to align on expectations and service level details. 
• An internal SLA refers to the service level agreement between an organization and its internal customers. For example, the revenue department in your company may create an internal service level agreement with the marketing department to align on expected operational performance and return on investment (ROI).
• A multi-level SLA creates different levels of service agreements to cater to different levels of customers. For example, a software as a service (SaaS) company may create different SLA levels based on the pricing ranges they charge for different subscription tiers. 

Service level agreement components

Service level agreement components vary depending on types of services, industries, and vendors. Below are the most common components that you'll come across in an SLA.

• Agreement overview is the first section of an SLA. It introduces both parties, shares details of services to be provided, and the start date.
• Stakeholders refer to the section that clearly define the details of parties involved in an SLA and their responsibilities.
• Service description, or description of services, describes the details of every service along with turnaround times. This section also sheds light on how a service provider delivers services, their operation hours, dependency locations, processes, and technologies. A service also must add whether they will offer maintenance services.
• Service performance defines the performance measurement levels and metrics an organization will use to measure the service levels of services provided. A service provider and an organization must agree on this list of levels and metrics before adding them to an SLA.
• Service exclusions specify the services a service provider doesn't offer as part of their services. This section is crucial as it helps organizations avoid confusion in the future.
• Service tracking and reporting section shares the SLA reporting structure, agreement stakeholders, and service tracking intervals.
• Redressing outlines the payment or compensation a customer should receive in case a service provider is unable to fully meet the obligations set in an SLA.
• Security lays out all security measures, including data security, IT security, and nondisclosure agreements, a service provider will use while fulfilling its obligations.
• Risk management and disaster recovery shares processes and practices a service provider will follow during the active duration of an SLA.
• Periodic process review defines the key performance indicators both parties will regularly review before making any necessary changes to the SLA.
• Termination lays out the circumstances under which either party can terminate an SLA. Both parties are required to share a notice period after which they may terminate the SLA.
• Signatures require authorized stakeholders from both parties to sign the SLA document, which is indicative of their approval of the service level agreement.

How to write an SLA

Writing an SLA involves five stages: defining the scope of service, verifying service levels, setting performance metrics, preparing the SLA document, and reviewing SLA with all relevant stakeholders. 

1. Define the scope of service

This stage involves defining the service clearly to include:

• Details of stakeholders
• Points of contacts along with their designations
• Details of services provided by the service provider
• Service exclusions 
• Customer obligations including payment frequency
• Vendor obligations including vendor service responsibilities
• SLA termination clauses outlining when either party can terminate the SLA

2. Check service levels

Service levels refer to the service output using measurable terms, which may vary and look different depending on the services a service provider is offering. For example, a call center may define service level as the number of calls they answer, whereas a product manufacturing unit may define their service level in terms of numbers of units they produce every day. Consider working with stakeholders from both sides to verify service deliverables and their deadlines. 

3. Define service performance metrics

Service performance metrics refer to key indicators companies use to measure the efficiency of a service provided by a service provider. These metrics allow companies to evaluate whether the service provider is meeting mutually agreed upon SLA management metrics. 

4. Prepare the SLA document

Now, it's time to prepare the SLA document using the data you collected using the first three stages.

5. Review the service level agreement

This stage involves inviting all stakeholders for the purpose of reviewing the SLA you created and gathering feedback from them. Once stakeholders of both parties agree to the document terms and conditions, you can gather final signatures and distribute the SLA document. 

Challenge of an SLA

In one word? Scheduling. Sounds like a no-brainer. After all, what could be easier than setting up a few appointments in a Google calendar. Well, if you’re a service provider of any kind and particularly if you’re one in the field service industry, you’ll know how hectic things can get. More often than not, companies have to juggle multiple SLAs and deal with both proactive and reactive work.

Proactive (or preventive) work would be that installation inspection we mentioned in our first example, where the service provider knows they have to comply with a regular check-up. Reactive work is the emergency kind, where the provider needs to fit an appointment in their schedule within a certain timeframe.

Most SLAs have clauses that dictate ‘asset downtime’ meaning how long an asset can be nonfunctional. Imagine your IT provider didn’t comply with their service level agreement and did nothing to fix your internet security issue for a week or more. Same with a fire alarm system. The consequences of SLA breaches can be serious for both parties.

Scheduling SLA appointments used to be a challenging task, involving multiple calendars and spreadsheets but nowadays there are planned preventive maintenance software that can help fast-forward the task. 

Just make sure your digital tool has these features: 

• Customization. Admins might want to use SLA features outside of contracts or even add additional criteria to appointments. It’s important to be able to set notifications according to necessity rather than being limited by the software.
• Countdowns. SLA information should be easy to find and understand even in busy situations. A countdown showing how much time is left before the SLA is breached will help operation managers and office admins plan accordingly.
• Reporting. Analytics are the bread and butter of any good manager these days, regardless of industry. Accurate SLA monitoring and history will help companies understand what works, what doesn’t and how to improve in the future.

Marketing opportunity in SLAs

Working under the assumption that the software you choose has the aforementioned features, there is a clear opportunity to improve one’s business reputation with the use of SLAs. It’s a great example of niche marketing that works. True success for a field service company or any other service provider resides with commercial contracts. These guarantee that your business will have a constant cash flow and won’t be subject to market fluctuations as much as a company dealing only with individual customers.

Everything sounds good enough but the truth of the matter is that commercial contracts don’t come easy. And they definitely don’t go to disorganized businesses. Service-level agreements are a given and they’ll come with tough consequences for any breach. 

For example, no commercial property can afford to go without electricity for any period of time without upsetting their own customers, employees, and run afoul of safety legislation. This means that commercial customers will look for tangible proof that your business can handle the pressure.

You can always use past service level agreements to further your brand. With the help of analytics, you can build reports to show that you have a 99% (maybe it’s even 100%!) uphold rate and demonstrate a successful track record. 

Office automation always has a nice ring to it when it comes to writing proposals. You’ll find that surprisingly few service providers of any kind can boast about transparency and guarantee that they have scheduling protocols in place beyond just a promise that they won’t be late. 

It’s key that you add reports based on your scheduling track record to the proposals you submit when you’re tendering for a big contract. Simply saying that you’ve successful upheld every SLA in the past won’t cover it.

You need to be exact and provide the prospective customers with hard data in a way that it’s easy to understand. They’ll be much more open to trust a business that can project this information in a professional manner and have proof to back it up than another provider who comes in with a handwritten stack of papers and the occasional coffee mug ring.

Final words

All in all, service level agreements are intimidating only when they’ve not been understood correctly. By following these few steps, you can use them to the advantage of your business and win bigger customers! 

Explore the best IT service management tools that help you execute, plan, and manage IT service delivery. 

This article was originally published in 2019. It has been updated with new information.