A service level agreement (SLA) is a contract that defines agreements about the quality and performance of a service. SLAs are widely used in the IT industry, but are also important in other industries. They help companies and their suppliers set clear expectations and minimize risks.
A service level agreement is a formal agreement between a service provider and a customer. It defines the expected performance of a service, including measurable criteria such as availability, response times and maintenance scheduling.
An SLA can be drafted independently, but is often used in addition to a master agreement. The main difference between an SLA and a regular contract is that an SLA focuses specifically on the performance and quality of a service, while a contract contains broader legal and financial agreements.
SLAs are particularly common in the IT sector, but can also be used in other sectors. They are particularly relevant in:
IT services: Cloud services, hosting, software development and IT support.
Telecommunications: Internet providers, VoIP services and mobile networks.
Facility management: Security services, cleaning contracts and technical support.
Logistics and transportation: Delivery services and supply chain management.
When a service is critical to operations, an SLA is a valuable tool to ensure that performance meets expectations.
A service level agreement ensures that both the service provider and the customer have clear expectations about the performance of a service. Without a properly drafted SLA, misunderstandings can occur, leading to delays, quality problems or even financial losses.
An SLA offers several benefits to both the client and the service provider:
Clear agreements – An SLA provides transparency about what will and will not be delivered. This prevents misunderstandings and discussions.
Reliability and predictability – By establishing performance indicators, a customer knows what to expect and a provider can improve its services.
Protection against financial risk – An SLA can include penalty clauses that require the supplier to provide compensation for poor performance.
More efficient collaboration – Clear agreements on communication and escalation procedures help resolve problems more quickly.
Compliance and regulatory support – In some industries, SLAs are required to comply with laws and regulations.
While an SLA has many advantages, there are also some disadvantages and concerns:
Risk of rigidity – An SLA that is too strict can offer little flexibility in the face of changing circumstances or unexpected situations.
High cost and time investment – Creating, negotiating and administering an SLA takes time and money, especially if the agreement is complex.
Difficulties in enforcement – Not all performance indicators are equally easy to measure. When agreements are vague, it can be difficult to hold a supplier accountable for deficiencies.
Risk of conflict – When an SLA is not properly aligned, legal or business disputes can quickly arise over the interpretation of the agreements.
An SLA helps protect businesses from potential losses due to poorly performing services. For example, consider a hosting provider that promises an uptime guarantee of 99.9%. If this guarantee is not met, the customer may be entitled to compensation, such as a discount or refund.
Operational risks can also be mitigated. When a company depends on a cloud service, a good SLA can ensure that maintenance and updates are scheduled in a way that has minimal impact on business operations.
A well-drafted SLA establishes what both parties can expect from each other. This prevents ambiguities and helps keep the business relationship running smoothly. For example:
An IT vendor can use an SLA to record how quickly support questions are answered.
A software development company may create an SLA that defines how bugs will be fixed and the time frame for updates.
By setting realistic and measurable goals, an SLA helps avoid frustrations and conflicts.
A good service level agreement contains several essential components that help establish and monitor the expectations of both parties. Below we discuss the key components that should be included in an SLA.
This section details the service being provided. This includes not only what the service entails, but also its scope, limitations and any exceptions. This prevents misunderstandings about what the customer can expect.
Example: a cloud provider can specify in an SLA what storage capacity, processing speed and network performance are guaranteed.
An SLA should include clear and measurable performance standards. This can vary by service type, but some common performance indicators (Key Performance Indicators, KPIs) are:
Availability (uptime) – The percentage of time the service is operational, for example, 99.9%.
Response time – How quickly the service provider responds to incidents or support requests.
Repair Time (MTTR - Mean Time to Repair) – How long it takes for an outage to be fixed.
Performance Speed – For example, the minimum network speed or loading time of an application.
By including these KPIs, it is possible to objectively determine whether the service provider is meeting the agreed-upon standards.
An SLA defines the obligations of both the service provider and the customer. This prevents one party from expecting more than what was agreed upon.
Examples:
The customer is responsible for reporting problems in a timely manner through a specific support procedure.
The provider must provide regular updates and reports on the performance of the service.
To ensure that agreements are kept, an SLA may include penalty clauses. This means that the supplier must offer compensation if it fails to meet agreed-upon performance standards.
Some examples of penalties include:
Discount on monthly fees – For example, if a cloud service achieves less than 99.9% uptime.
Financial compensation – The customer gets a certain amount of money back in case of repeated disruptions.
Early termination without charge – If the service structurally underperforms.
The inclusion of penalties ensures that vendors are serious about agreed-upon performance levels.
An SLA is not a static document. Technological developments, changing business needs and new legislation may cause adjustments to be necessary.
Therefore, an SLA should include provisions on:
How and when the SLA will be reviewed and modified.
Who is responsible for revisions and approvals.
How changes will be communicated and implemented.
Reviewing the SLA periodically keeps it relevant and effective.
Drafting a good service level agreement requires a structured approach. The document must not only be legally correct, but also practical to implement. Below we discuss the main steps and points of interest.
An effective SLA contains clear and measurable agreements. This can be achieved by applying the SMART method:
Specific – Formulate concrete agreements about the service and performance.
Measurable – Define KPIs by which performance can be objectively measured.
Acceptable – Make sure both parties have realistic expectations.
Realistic – Set achievable performance standards, for example, an uptime of 99.9%.
Time-bound – Specify the time frame within which performance will be measured and evaluated.
An SLA without SMART goals is vague and difficult to enforce.
To avoid confusion, an SLA should be clear and detailed. Avoid generic terms such as “high quality service” and replace them with concrete specifications such as “response time within 2 hours for critical incidents.”
Examples of clear agreements in an SLA:
Software updates are implemented within 48 hours of release.
Support tickets are acknowledged within 30 minutes and resolved within 8 working hours.
The hosting service guarantees an uptime of at least 99.95% per month.
By including such details, you avoid differences in interpretation.
Performance monitoring is essential to verify a vendor's compliance with the SLA. This can be done through:
Automatic monitoring – Software tools that continuously measure performance.
Periodic reports – Overviews showing performance and deviations.
Review meetings – Discussions between supplier and customer to go over areas for improvement.
Through regular monitoring, problems can be identified and addressed early.
If agreed performance levels are not met, there must be a clear roadmap to resolve the problem. An escalation procedure ensures that incidents are dealt with effectively.
A good escalation model includes:
Initial notification – The customer reports the problem through the agreed-upon channels.
Analysis and initial response – The supplier investigates the problem and provides a timeframe for resolution.
Second escalation level – If the problem persists, a senior employee or manager is called in.
Third level of escalation – For serious or recurring problems, an independent arbitrator or legal process may follow.
By establishing escalation procedures in advance, you avoid unnecessary discussions.
Not every service or customer has the same requirements. Therefore, a standard SLA is not always sufficient. By tailoring an SLA, it better suits the specific needs of the client and the service provider.
Factors to consider with a customized SLA:
How critical the service is to business operations.
Specific laws and regulations within the industry.
The complexity of the service and custom solutions needed.
A custom SLA increases effectiveness and avoids unnecessary restrictions.
Service level agreements (SLAs) can be classified in different ways, depending on their structure and scope. Below we discuss the three most common types of SLAs.
A customer-based SLA is an agreement designed specifically for one customer. This type of SLA is often used when a vendor provides customized services to an individual customer with unique needs.
Example: An IT service provider creates an SLA for a large company agreeing that all internal departments have access to specific software with a guaranteed uptime of 99.9%.
Benefits:
Fully tailored to the customer's needs.
Clarity of performance and commitments.
Suitable for customized solutions.
Disadvantages:
More complex and time-consuming to set up.
More difficult to manage if multiple SLAs are required per customer.
A service-based SLA focuses on a specific service and applies to all customers who purchase that service. This type of SLA is standardized and is often used by companies offering the same service to multiple customers.
Example: A web hosting company has an SLA that states that all customers will receive 99.95% uptime and 24/7 customer service, regardless of their specific contract.
Benefits:
Efficient and easy to manage.
Clear and consistent agreements for all customers.
Accommodates standardized services such as cloud storage and Internet services.
Disadvantages:
Less flexible as individual customer needs are not taken into account.
Customers can exert little influence on agreements.
A multi-level SLA is a tiered agreement that provides different levels of service within an organization or for multiple customers with different needs. This type of SLA is especially useful in large companies or partnerships.
Example: An international software vendor offers several levels of SLA:
Corporate level: General agreements on uptime and security for the entire company.
Division level: Additional agreements for specific departments, such as IT support for development teams.
Customer level: Individual SLAs for large customers with specific requirements.
Benefits:
Highly flexible and tailored to different needs.
Ability to combine general and specific agreements.
Ideal for large companies with multiple departments or international customers.
Disadvantages:
Complex to manage and requires regular updates.
Can be time-consuming and costly to set up.
Drafting a service level agreement may seem simple, but in practice, mistakes are often made that can lead to misunderstandings, unclear expectations or even legal problems. Below, we discuss common pitfalls and how to avoid them.
One of the biggest mistakes with SLAs is the use of vague terms such as “good service,” “fast response” or “high availability.” Such descriptions leave room for interpretation and can lead to discussions between customer and supplier.
How to avoid:
Use measurable and specific KPIs, such as “response time within 2 hours for critical incidents” or “minimum 99.9% uptime per month.”
Define exactly what performance is expected and how it will be measured.
An SLA that is too rigid can limit flexibility and stifle innovation. On the other hand, agreements that are too loose can result in failure to maintain service quality.
How to avoid:
Balance strict agreements with flexibility to respond to changing circumstances.
Schedule periodic reviews of the SLA so that it is always up-to-date.
An SLA is useless if there are no monitoring mechanisms to measure compliance with the agreements. Some companies establish an SLA but then do nothing with the metrics.
How to avoid:
Implement a system for continuous monitoring and reporting.
Conduct periodic reviews and discuss performance metrics with the vendor.
Make sure there are consequences for not complying with the SLA.
Services, technologies and business needs are constantly changing. An SLA created years ago may now be outdated.
How to avoid:
Establish in the SLA how often and when it will be reviewed.
Involve both the customer and the service provider in the review.
Check whether new technologies or market conditions impact existing agreements.
A well-drafted service level agreement is crucial to successful collaboration between service providers and customers. It provides clear guidelines on expected performance, helps minimize risks and ensures that both parties know where they stand.
By establishing an SLA with measurable objectives, clear responsibilities and a proper monitoring process, you avoid misunderstandings and ensure service quality.
Whether you draw up an SLA for IT services, cloud solutions or logistics services, it is important to regularly evaluate and adjust where necessary. That way, the agreement always stays in line with your organization's needs.
If there's one thing we hate, it's unexpected costs and unclear agreements. That is why we work with SLAs that are tailored to each customer, so that you always know where you stand and you experience our service without surprises.
Wondering how we set up SLAs for software development, SaaS solutions or custom applications? Contact us and find out how we tailor service guarantees to your needs.
There are three common types of SLAs. A customer-based SLA is specific to one customer and tailored to their unique needs. A service-based SLA applies to a specific service and is offered to multiple customers without adjustments for each individual. A multi-level SLA offers layered agreements within an organization or between different parties, for example, with different levels for departments, teams and end users.
Yes, an SLA can be legally binding if it is properly drafted and signed by both parties. Although an SLA is usually an adjunct to a broader contract, agreements on performance, penalty clauses and responsibilities can be legally enforced, provided they are clearly and measurably defined.
A contract describes the general legal, financial and commercial arrangements between two parties. An SLA focuses specifically on the services provided and the performance standards they must meet. So an SLA can be part of a contract, but goes much deeper into service quality, response times and penalties for failure to meet agreements.
SLA management consists of five phases. First, expectations and performance indicators are determined in the negotiation phase. This is followed by the implementation phase, where the SLA is officially established and service delivery begins. In the monitoring phase, performance is continuously monitored and compared to the SLA agreements. Then the evaluation takes place, assessing whether expectations have been met. Finally, in the review phase, the SLA is adjusted based on changing circumstances or new business needs.
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