Service-level agreements (SLAs) — a complete guide

Ambiguities, miscommunications, and unfilled commitments occur between customers, servicer providers, and internal departments for multiple reasons. Service-level agreements (SLAs) are an effective way to mitigate these setbacks and set clear expectations from the start of any business relationship.

While service-level agreements may sound complex and confusing, they don’t have to be. To help you navigate the world of SLAs like a pro, we’ll cover:

• What a service-level agreement (SLA) is
• Who needs an SLA and why
• How SLAs work
• Three types of SLAs
• SLA best practices
• Examples of SLAs
• Frequently asked questions

What is a service-level agreement (SLA)?

A service-level agreement (SLA) specifies the degree of service a customer can expect from a supplier or vendor. An SLA details the service expected of the vendor, the metrics the deliverables will be measured by, and penalties that will be implemented should the agreement not be met by either party. SLAs are usually between a vendor and the companies it supplies. They can also be between departments within a company.

Vendors that use SLAs include companies like Adobe, Google, Amazon Web Services, and Microsoft. These SLAs provide details about services like guaranteed interface availability to customers, expected levels of server downtime, and credits customers can expect if they experience disruptions due to a violation of the terms.

Who needs an SLA and why

Many expectations and metrics defined in an SLA seem obvious at first, but documenting them for reference ensures each party has the same understanding of the agreement. If issues arise with the service a vendor provides, no one can claim ignorance of a failed deliverable, underperformed metric, or lack of availability.

Companies can also use internal service-level agreements to avoid misinterpretation and miscommunication between departments.

Key benefits of SLAs include:

• Improved customer and employee experiences. Providing clarity and structure to agreements and working relationships improves the customer experience with your company and employees’ internal job satisfaction.
• Better alignment. Reduce friction between the customer and the vendor or between coworkers by giving each party access to the same information.
• Clear metrics for success. Providing your vendor or other departments with key performance indicators (KPIs) lets them know in advance how you will measure success.
• Precise communication. SLAs establish a structure for communication that helps reduce the number of email, calls, or tickets clarifying terms and conditions.
• Optimized productivity and morale. With deadlines and the urgency of deliverables explicitly defined, vendors can focus on priority items and avoid wasting time on tasks of lesser importance. This improves the confidence of the customer in its supplier and in the employees in charge of completing the services.

How SLAs work

Every organization’s SLA will look a little different, but there are some basics to understand before you get started.

The party responsible for the SLA

Most vendors have a standard SLA that covers their services at each price point. This is a good place for customers to start, but keep in mind that a supplier’s SLA generally protects them more than it protects you. It is best to treat a vendor’s standard SLA as a foundation for negotiations you’ve reviewed with your attorney.

Key components of an SLA

Every vendor will include different details, but here are the most important and common components to include in an SLA:

• Overview of the agreement. The SLA should start by describing the basics of the agreement, including the names of the parties involved, when the agreement begins, and a general introduction of the services provided.
• Services. The description of vendor services should list specific deliverables, when they will be completed, and any other capabilities the client has access to during the lifetime of their agreement.
• Metrics. The customer will define their goals and how they are measured. These KPIs help the vendor understand how the client defines success. Suppliers can also provide their metrics for success as a benchmark to attract customers.
• Points of contact. The SLA should provide a list of contacts that details who is in charge of which aspects of service and how to contact them. This avoids miscommunication and ensures questions are directed to the person who can answer them.
• Exclusions. Describing what is not included in the service agreement removes doubt about what lies outside the scope of an SLA.
• Cancelation conditions. Outline terms for how either party can end the service agreement. Whether termination is due to changing circumstances, the agreement’s end date has been reached, or other reasons, both sides need to know what the conditions and consequences are for ending the contract.
  
  Don’t skim through the SLA when you review it. The goal of this agreement is to eliminate any confusion surrounding expectations within the scope of work, so dig into the details.

The purpose of an indemnification clause

Indemnification is a clause in a service-level agreement stating the vendor will indemnify the customer if it fails to deliver on any of the agreed services. To indemnify means the vendor covers any legal costs, damages, losses, or liabilities the customer pays as a result of the vendor violating the SLA.

If you use a supplier’s standard SLA an indemnification clause may not be included. You have the right to draft your own and negotiate the scope of indemnification.

Typically a supplier negotiates:

• A restriction on the number of indemnitees
• A financial cap
• Time limits
• A point where the obligation for indemnification begins

Three types of SLAs

There are three basic types of service-level agreements. They have similar goals but each serves different relationships and covers unique nuances.

Customer service-level agreement

A customer SLA is between a vendor and a customer. It promises that the vendor will deliver a particular level of service to its customer — either an individual, a group, or a company. An agreement between a customer and their internet provider is an example of a customer SLA.

Internal service-level agreement

An internal SLA ensures that both parties are aware of the responsibilities and duties of the other team. It establishes a clearer understanding between departments and avoids ambiguity surrounding each team’s expectations, roles, deliverables, and more.

For example, a company can draw up an internal service-level agreement between its sales department and its marketing team. This SLA might specify that marketing needs to provide a certain number of leads to sales per month to reach its quota.

Multilevel service-level agreement

A multilevel service-level agreement is an SLA split into different tiers that each address a subset of customers or departments in a company. These comprehensive SLAs cover all relevant aspects of an agreement, including the expectations of each party when there are multiple vendors or users.

For example, an external multilevel SLA might include a general section addressed to all customers while another section applies only to customers who’ve purchased a specific package or subscription. An internal multilevel SLA might start with terms that apply to all departments but have specific subsections that only concern sales and IT. The overlap and exclusivity will depend on the needs of the company and its departments.

SLA best practices

Every company approaches service-level agreements differently. As you use and create them in your business, you’ll develop your own best practices that fit your needs. Here are a few standard best practices as a foundation.

Be realistic and clear about goals.

Set the scope of what you want to achieve, but consider what the vendor or your internal teams are capable of and what is reasonable to expect. Once the goals are accepted, state them clearly. Ask someone else from your team to read the goals to make sure they are easy to understand.

Be specific when it comes to the details.

The purpose of a service-level agreement is to create a document that’s accessible to all parties and answers questions, resolves disputes, and clears up miscommunications. Include every detail, even those that seem understood or assumed.

Define the metrics of your service-level agreement. While terms and conditions are certainly a key element of an SLA, the metrics by which the provided services will be measured are crucial. The exact metrics will depend on who is entering into the SLA, the type of business, the goals set, and more. Below are some examples of metrics that may be taken into consideration and included in an SLA.

• Service availability and downtime. This is the amount of time that the vendor’s services will be available to use. Percentage of time available during working hours and the time zone of those hours are critical details that should be outlined in an SLA.
• Defect rates. Specify defect rates to set an acceptable percentage or number of errors within a deliverable. This can include anything from coding errors to missed deadlines. The exact metrics will depend on your company’s needs and the nature of the deliverables.
• Technical quality. If your company has outsourced a technical product, quality can be measured by tools that look at factors like coding errors, program size and speed, and more. Each deliverable should have its own metric for what will and will not be accepted when it comes to technical quality.
• Security. Identify vulnerabilities and steps to counteract those weaknesses. If a security issue arises you want to be able to trace the steps the vendor took to prevent the breach and what they are doing to control it in the future.
• Business results. It’s common for IT customers to want their SLA to include business metrics. If a vendor’s contribution to a company’s existing KPIs can be quantified, those KPIs can be worked into a service-level agreement.

Examples of SLAs

The details of a service-level agreement will be unique to your business and needs. Below are some examples of SLAs.

Google Workspace service-level agreement

Google’s Workspace SLA includes important terms — like the Google Workspace web interface “will be operational and available to Customer at least 99.9% of the time in any calendar month,” and “Google Voice will be operational within two business days of Customer's acceptance of the Voice Service Specific Terms via the Admin Console.” The SLA also notes that if Google does not fulfill its end of the service-level agreements, customers will be entitled to service credits as outlined in the agreement.

How to implement this in your SLA

Keep the terms of your SLA simple. Google provides two specific terms to customers — the monthly uptime percentage and the number of days customers can expect their Google Voice service to be operational. It’s important to clearly define words and terminology in your SLA to avoid ambiguity.

Microsoft Azure SLA for cloud services

Microsoft Azure offers a separate SLA for each cloud service, like mobile app services, analytics, and site recovery. For example, in one SLA Azure guarantees that mobile apps running in a customer subscription will be available to customers 99.95% of the time.

How to implement this in your SLA

For vendors that offer multiple services, this segmented approach is an excellent way to make each SLA easily searchable for customers. Each service-level agreement is also broken up into three sections — Introduction, General Terms, and SLA Details — providing a streamlined and easily digestible SLA for each of the vendor’s services.

PandaDoc service-level agreement

PandaDoc is a software as a service (SaaS) company that uses a clear and simple approach to outline the terms of its SLA. It presents details like times, dates, and expectations concisely while leaving little room for misinterpretation. Even though PandaDoc’s template uses legal language, it remains a strong SLA because the structure is easy for the layperson to use. It clearly outlines client and supplier responsibilities, objectives, expectations, and limitations.

How to implement this in your SLA

Ensure your SLA has a solid structure that is easy to follow. Your expectations should be easy to understand despite the legal jargon necessary for a binding contract. If your services vary little across clients you can create a template version so customers can easily enter their company’s name where necessary. This simplifies the process so you don't have to draft a new SLA for each relationship.

Adobe Unified service-level agreement

In Adobe’s SLA, terms such as “availability,” “downtime,” and “services covered” are all outlined and defined clearly for the customer’s use. The service-level agreement guarantees service credits if specific uptime percentages are not met. For example, customers can receive a service credit worth 5% of their monthly fees if their covered Adobe service has an uptime of less than 99.9% but more than 99.5%.

How to implement this in your SLA
The very clear details of this service-level agreement are what make it so beneficial for both parties. Customers know exactly what they can expect from their services. Clearly outlined deliverable metrics and penalties for unmet deliverables leave no room for confusion.

Frequently asked questions

If you have further questions about service-level agreements it is best to consult your attorney for any specifics to your company. However, we’ve included some frequently asked questions to help guide you before meeting with legal counsel.

Is an SLA transferable?

The issue of transferring an SLA can come up if your service provider has been acquired by another company. While your existing SLA may be transferable, it’s best not to assume that it is. The new vendor may honor the existing service-level agreement, or it may need to be rewritten entirely.

What happens if a provider doesn’t provide the service levels outlined in the SLA?

Every service-level agreement should include a section that outlines penalties for cases where minimum performance standards are missed. These unmet service agreements can include targets and metrics not reached, missed deadlines, or high defect rates. The penalties are then deducted via service credits at a rate agreed upon by the customer.

What are “earn backs”?

Vendors sometimes include a clause in a service-level agreement that allows them to earn back paid service credits. This provides vendors with the ability to earn back the service credits that were lost by not meeting minimum performance standards. Vendors earn credits back by performing at or above standard service level for a specific amount of time.

How often should SLAs be revised?

This is entirely dependent upon the company and vendor involved, and the needs and requirements of both parties. It’s generally best to think of SLAs as constantly evolving documents. An SLA should be reviewed if:

• The business needs of your company have evolved. For example, a start-up ecommerce site or app will likely have more aggressive availability needs as it grows and adds more users.
• More reliable technology becomes available, making lower defect rates possible.
• There’s a change in workload on the part of the customer, company, or vendor. This can include growing or shrinking teams, a change in working hours, or any number of variables.
• There is a change in metrics, measurement tools, or processes. Since metrics and measurement tools are critical for determining if the terms of the SLA have been met, any change in these standards should be reflected in the service-level agreement.

Tools for service-level agreements

SLAs are excellent for removing ambiguity and reducing friction between the customer and the vendor or between coworkers.

If your company relies on suppliers for services, meet with your team to establish your expectations from a vendor and what metrics you use to determine if they are met. If you are a supplier, you’ll need to clearly define the scope and reasonable accessibility for your services. Once you’ve solidified your SLA, a content management tool will help you stay organized and make the document readily available for reference.

Adobe Experience Manager is a powerful digital content tool that combines digital asset management with the power of a content management system. Experience Manager’s cloud service features optimal performance, excellent SLAs, and enterprise-grade security. Watch the overview video to learn more.