A successful business often appears deceptively simple, but behind the scenes, a web of digital tools keeps operations running smoothly. From team communication apps to content management systems to customer service platforms, these tools are essential for online and brick-and-mortar operations. But they all carry a small risk of failure.
An app might experience unexpected downtime, reduced performance, or data breaches caused by server issues, software bugs, or cyberattacks. This is where service-level agreements (SLAs) make a difference. These agreements, forged between a business and a service provider, set clear customer expectations and guarantees for service quality, uptime, and performance metrics while outlining procedures for addressing disruptions.
Here’s what you need to know about SLAs before committing to that next must-have app for your business.
What is a service-level agreement?
A service-level agreement is a technology vendor contract between a service provider and its customer that defines the service expected, including performance metrics, service availability, and responsibilities.
An SLA outlines specific, measurable standards the provider commits to meet, and the consequences or remedies if these standards are not upheld. It sets clear expectations for both parties, ensuring the customer receives a consistent level of service while establishing the benchmarks the provider must meet.
For instance, a customer service platform might have an SLA guaranteeing 99.9% uptime, crucial for an ecommerce brand—the customer—that relies on the platform to handle inquiries, especially during high-traffic periods like Black Friday, when system reliability can make or break sales and impact customer satisfaction.
Sometimes, an SLA comes built into the standard subscription of your business software, like an email API for sending ecommerce transactions emails to your customers. Other times, it’s negotiated directly with the service provider, especially for enterprise-level solutions like a developer platform, where you meet a minimum annual spend or usage threshold.
Not every tech platform or SaaS service offers an SLA. Those that do may reserve SLAs for enterprise customers with bespoke deals rather than standard monthly subscribers.
Why are service-level agreements important?
An SLA can protect your business and provide the following benefits:
Ensure consistent service quality
A software app’s landing page often includes lofty promises and buzzwords like “reliable” and “trusted.” SLAs formalize these claims into a legally binding service agreement, holding the service provider accountable for maintaining measurable quality standards.
An SLA might guarantee uptime, response times, and issue resolution time frames, so you can confidently rely on the service, knowing the provider is obligated to meet these benchmarks.
Establish accountability and trust
An SLA turns the client-provider relationship into a partnership with clear expectations. SLAs create accountability by detailing performance metrics and consequences for underperformance. This clarity fosters trust, ensuring you know what to expect and how issues will be handled.
An SLA also reflects a provider’s confidence in their service and commitment to quality. However, the absence of an SLA doesn’t necessarily mean a tool is unreliable—many reputable services uphold high standards without formal agreements. An SLA simply provides added assurance for critical business operations like web hosting and payment processing.
Offer protection and recourse
Even the most reliable tools experience unexpected issues. Trusted platforms like Slack face occasional outages, disrupting workplace communications for millions. In July 2024, cybersecurity company CrowdStrike’s faulty update caused a historic outage, crashing approximately 8.5 million Windows systems worldwide and disrupting critical technology infrastructure.
An SLA outlines specific remedies for these service disruptions, including service credits, extended subscription periods, and even financial compensation. While these solutions don’t erase the impact of a major outage, they offer tangible accountability and can help offset financial losses.
Types of service-level agreements
SLA is an umbrella term that includes various kinds of agreements between service providers and their customers. Here are three key types:
Customer service-level agreement
A customer SLA is an agreement between a service provider and an external customer, outlining the specific services to be delivered, the performance standards required, and the penalties for non-compliance. For example, a cloud storage provider might have a customer SLA with an ecommerce company, guaranteeing 99.9% uptime for their hosted product images and customer data.
Internal service-level agreement
An internal SLA is an agreement within an organization that sets expectations for services between departments. An IT department might have an internal SLA with the marketing department, promising a four-hour response time for tech support tickets.
Internal SLAs are uncommon in small companies but frequently used by large corporations with hundreds or thousands of employees for smooth interdepartmental operations.
Multi-level service-level agreement
A multi-level SLA is a more complex agreement that addresses service-levels for various customer groups, enabling targeted service delivery based on specific customer needs or tiers.
For example, a software-as-a-service (SaaS) company might offer a multi-level SLA where premium-tier customers receive 24/7 support and 99.99% uptime, while standard-tier customers receive business-hours support and 99.5% uptime.
Generally, the more a customer pays, the higher their priority in the SLA, resulting in better service guarantees, faster response times, and more comprehensive support.
Key components of service-level agreements
A well-written SLA leaves little room for confusion. While the specifics vary from agreement to agreement, most service providers include the following in their SLAs:
- Service description. A service description outlines the specific services covered by the agreement, such as data storage capacity, bandwidth allocation, or number of user licenses.
- Performance metrics. These quantifiable measures are used to assess service quality. Common metrics include specific figures like “99.9% uptime,” “15-minute response time for critical issues,” or “98% successful transaction rate.”
- Reporting and monitoring. Details on how service performance is measured and reported are provided in this section, including tools for monitoring, reporting frequency, and the format of dashboards or reports.
- Responsibilities. The roles and duties of the service provider and the customer, including the provider’s regular security updates or the customer’s maintenance of certain hardware configurations.
- Penalties and remedies. Consequences for the service provider’s failure to meet agreed-upon performance metrics. Service credits or escalated support (at no additional cost) may be included as potential fixes.
- Exclusions and limitations. The SLA may not apply in certain circumstances, like during scheduled maintenance windows or service disruptions caused by the customer's actions.
Service-level agreement best practices
- Evaluate SLA terms before commitment
- Compare SLAs across multiple providers
- Seek legal counsel for SLA review
- Document and report service failures
Understanding your SLA can help you to make informed decisions about the services you rely on, even without direct control over their terms. When comparing similar tools or services, the quality of their SLA can make a difference. If you have the opportunity to negotiate an SLA, knowing what to ask for can ensure you secure the protections and guarantees.
Here are best practices for assessing and agreeing to an SLA:
Evaluate SLA terms before commitment
Before signing an SLA, thoroughly examine performance metrics, service guarantees, and compensation terms to ensure they meet your needs. By understanding the SLA, you’ll be better equipped to hold the service provider accountable and manage your expectations if issues arise.
Pay attention to the definitions and ensure all key performance indicators are measurable to avoid disputes. Instead of vague promises like “fast response times,” insist on specific benchmarks, like “initial response within 15 minutes for all reported issues,” to establish clear standards.
Compare SLAs across multiple providers
Don’t limit yourself to a single option when shopping for providers. Gather SLAs from multiple vendors and create a comparison matrix of key metrics like uptime guarantees, response times, and penalty clauses.
It’s common for customer service platforms like Intercom and Zendesk to offer SLAs. If you’re undecided between two similar tools based on features alone, you might compare their SLAs to make your choice. If you can’t find a company’s SLA on their website or through a quick online search, they likely don’t offer one publicly or may not have a standardized SLA.
Seek legal counsel for SLA review
IT service provider agreements are complex. Are SLAs legally binding contracts? Can they be enforced? The answer is often, “It depends.” Reach out to a lawyer specializing in this area who can identify potential legal pitfalls and spots where the agreement may not adequately protect your interests. If you’re signing an enterprise contract, your legal counsel may also help you negotiate more favorable terms.
Document and report service failures
Keeping detailed records of service failures and other issues creates a valuable paper trail in case of disputes. Most SLAs allow only a limited time window to report violations, ranging from 24 hours to 30 days after the incident. Remember to submit formal reports of SLA violations within the specified time frame to remain eligible for compensation or remedies.
Service-level agreement FAQ
What are the three types of SLAs?
The three main types of service-level agreements are customer SLAs, internal SLAs, and multi-level SLAs.
What is an example of an SLA?
Twilio, a cloud communications platform that enables developers to build voice, messaging, and video applications, has an SLA that guarantees 99.95% monthly API availability for their Services APIs, with an increased 99.99% threshold for enterprise-level customers. If Twilio fails to meet these thresholds, customers are eligible for a 10% service credit on their monthly fees for the affected APIs.
What is the purpose of an SLA?
The purpose of an SLA is to clearly define the level of service a customer can expect from a provider, including performance metrics, responsibilities, and remedies for service failures.
