The success of a business depends on its ability to meet the expectations of its customers. Many businesses use Service Level Agreements (SLAs) to clearly define and outline the level of service they provide to their customers. These agreements help organizations manage customer expectations and mitigate issues when those expectations are not being met.
This blog post tells you everything you need to know about SLAs including why you need them for your business.
What is SLA?
A Service Level Agreement, or SLA, is a contract that outlines the level of customer service that is expected by customers. It also defines how that level of customer service will be measured, and what will happen if the agreed-upon levels of support are not achieved.
Sometimes, an SLA is between a supplier and a company, but other times, an SLA is between two different internal departments of the same company.
Common services that have an SLA are IT support, web hosting, and cloud storage. An SLA will typically outline the terms of service, including the level of support to be provided, response times, uptime guarantees, and other important details.
An SLA, or service-level agreement, is a contract between a technology vendor and their customer that outlines the expectations of service type and quality. Beyond just listing service expectations, an SLA provides remedies in the event that requirements aren’t met.
Here are some common questions about SLAs and a few tips for drafting effective agreements with your service providers.
What are the three different types of SLAs?
Here are the three types of SLA:
1. Customer Service Level Agreement
A customer SLA is exactly what it sounds like: a contract between a vendor and a customer to provide a certain level service. Here’s a fun example:
Dunder Mifflin is the paper supplier to various organizations in the TV series The Office. They may have an SLA that states that Dunder Mifflin will supply [Company] with 50 reams per month. This paper is shipped every Monday to [Address1] and [Address2] by Darryl Philbin, with a confirmation sent to Jim Halpert. (Sorry, that was a lot of fun.)
2. Service Level Agreement
An internal SLA is only applicable to parties within the company. A business may have an SLA with each client, but it can also have a separate SLA between the sales and marketing departments.
Let’s say Company X has to close $5,000 in sales each month. Each sale is worth $100. Amir, Company X’s marketing manager, can work with the sales department to establish an SLA. This stipulates that Marketing will deliver 100 qualified leads each month to Kendra, the sales director. Kendra might send Amir four weekly status reports each month. This will ensure that Kendra’s team is meeting their monthly sales goals.
3. Multilevel Service Level Agreement
Multilevel SLAs are useful for supporting customers and internal departments. This type of SLA is used to define what each party should do if there are more than one service provider or end user. Here’s an example for a multi-level SLA in an intranet situation:
Company X’s marketing and sales teams collaborate on an internal SLA that delivers leads every month from Marketing to Sales. What if they wanted to include a customer retention strategy into the contract, making it an SLA among Sales, Marketing, Customer Service?
After 50 new sales deals are closed for the month, Customer Service is responsible for keeping these customers happy and satisfied while they use the product. Company X may have Kendra, its sales director, send monthly “customer friction” reports to Joan, the VP for service.
These reports are based on the dialogue that the sales team has with clients. This allows the customer service team to build a knowledge base that is better prepared for the problems customers call them about.
Importance of an SLA
An IT Service Level Agreement (or SLA) is a contract that outlines the services an IT provider will provide, their quality and expected up-time.
SLA is an agreement between a business and a customer that outlines the responsibilities of each party. It sets clear expectations for what the customer can expect from the business and the business from its customers. Having an SLA helps to ensure that both parties agree and understand their responsibilities.
Any legal document that you haven’t gotten reviewed from an attorney can be subject to misinterpretation. An SLA can help protect both you and the other person in the document.
A Service Level Agreement (SLA) is an agreement between a business and a vendor that outlines specific metrics and objectives that must be met. An agreement like this is important to ensure that vendor performance meets your business’s expectations.
Who provides the SLA?
Most phone providers have a standard Service Level Agreement (SLA) that outlines their level of service. These agreements are often skewed in favor of the phone provider, so it’s important to review and modify the agreement with your legal team.
It’s important to review the SLAs provided by your provider, as they may not be entirely unbiased. Work with a lawyer to ensure these agreements are fair to both parties.
When creating your Request for Proposal, make sure you include the level of service you expect. This will ensure more accurate pricing from the suppliers. It may also influence their decision to respond.
For instance, if you insist on 99.999% uptime, and your supplier can’t provide that with your proposed architecture, they may offer an alternative, more fault-tolerant approach.
What are key components of an SLA?
The Service Level Agreement should cover two areas of your business: the services you provide and the services you manage.
The elements of a service contract include the types of services offered, the conditions under which the service will be provided, the standards for meeting those requirements, the responsibilities of both parties, the procedures for escalating problems, and the cost/benefit tradeoff.
An SLA should cover:-The metrics used to measure performance-The reporting schedule-How disputes will be resolved-The liability of each party-The process for updating and renewing the agreement
An updated Service Level Agreement should be created regularly to ensure that the agreement accurately reflects the current services required and the vendor’s abilities.
What happens if a provider doesn’t meet the agreed-on service levels?
SLAs include agreed-upon penalties, called service credits, which can be enforced when:
If a service provider doesn’t meet the agreed-upon level of service, they will be subject to a financial penalty. For instance, the customer and the vendor can agree to put a percentage of the monthly service fee at risk from which credit is drawn when services are not met.
This incentive program is meant to encourage providers to perform better, but not be overly harsh.
It is best practice for IT organizations to avoid using SLA provisions as punishment for their IT partners. Instead, they should use SLA metrics as an opening for productive conversations around performance, priorities, and the future direction of the engagement or relationship. This approach is intended to incentivize provider performance without being overly punitive.
How often should we revise our SLAs?
As your business changes, so will your customer service needs. An SLA should not be viewed as an unchanging document.
The Service Level Agreement should clearly define how the contract can be modified during the contract’s duration. The terms should be revisited regularly, especially if:
The needs of the client may have changed, for example, if they started an e-commerce business, their need for more bandwidth increased.
The technical environment has changed, making a higher availability commitment possible.
The workload has changed.
Call tracking metrics, tools, and processes have greatly improved.
The Service Level Agreement (SLA) is a critical component of any vendor relationship, and it’s worth taking the time to properly think through and codify the arrangement at the beginning of the partnership.
A contract will protect both you and your client, and should any disputes occur, will clearly state the remedy to avoid confusion.
That can save time and money for both the customer and the supplier.
SLA Best Practices
It’s important to align your efforts with industry best practices in order to get the most out of SLA creation, implementation, and service level management. These are some of the most popular:
Set realistic goals
Although it may seem like a great idea to promise the moon, things can quickly get out of control if SLA outcomes aren’t met. It’s worth having a brainstorming session with relevant stakeholders to start SLA creation. This session is about defining your goals, what you can do, as well as what you can offer.
Ensure everyone is on board
Next, ensure that all parties are satisfied with the draft SLA. It is better to discover the potential problems early and make proactive changes than to be forced to scrap existing SLAs and start again.
SLAs are only effective if they are specific. If you are an IT service provider, for example, and you want to create an SLA regarding uptime, the number “nines” – 99.999 percent, 99.99999%, etc. – will be important. This defines how much uptime you agree to provide. Specific terminology eliminates ambiguity and reduces conflict around SLA expectations.
Pinpoint Key Metrics
Specific SLAs are a good starting point. However, you need to be able to measure the success of your agreement. As you can see, the downtime is often used to determine whether goals are being met. In the meantime, metrics can include leads generated, deals close, or any other measure that makes sense within your SLA structure.
Take into account the unexpected
Unexpected events, such as severe weather, staffing problems, or sudden IT failures, can make it difficult to achieve SLA goals. It’s important to include clauses that allow for unexpected events. It’s impossible to predict what will happen and obligations must still be met, but it’s worth creating clauses that allow for unexpected events.
Double-check the details
Even small details matter. Take the following example: 99.999% uptime is just over 5 minutes per year, but 99.9999% is 31 seconds. A misplaced 9 could mean that your company is responsible for providing service levels that are nearly impossible to achieve. Before you move forward, make sure to double-check your SLA.
Revise and Reexamine as Required
SLAs don’t have to be static. They are not static documents. They can be extended for a period of time and include a list of actions. However, partner and provider business needs may change over that time.
It’s worth including the option to review during the SLA agreement period. Then, conduct a full review once the contract is up to determine whether any changes are necessary.
Overall, using an SLA in your supply chain can be extremely beneficial. It can improve communication and collaboration between suppliers and customers, leading to better overall relationships and more timely deliveries. If you’re having difficulty meeting your deadlines or communicating with your supplier, consider implementing an SLA.
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