What Is a Service-Level Agreement (SLA)? And How to Write One

Discover what goes into a service level agreement (SLA), why businesses need SLAs, and how to write one.

What is an SLA?

SLA stands for service level agreement. It refers to a document that outlines a commitment between a service provider and a client, including details of the service, the standards the provider must adhere to, and the metrics to measure the performance.

Typically, it is IT companies that use service-level agreements. These contracts ensure customers can expect a certain level or standard of service and specific remedies or deductions if that service is not met. SLAs are usually between companies and external suppliers, though they can also be between departments within a company.

What are the three types of SLA?

1. Customer SLA is an agreement between an organization and a third-party vendor providing a service. For example, an organization might hire an office supply company or a design agency to fill specific business needs.

2. Internal SLA is an agreement between teams within an organization. For example, the sales team might enlist the marketing team for support in generating leads.

3. Multi-level SLA is an agreement between multiple parties, such as an organization and multiple vendors, more than two teams within an organization, or a vendor providing services to customers with different service plans. For example, sales and marketing teams within an organization might find they need to enlist the help of a third team—customer support—to improve customer satisfaction.

Why are SLAs important?

SLAs are common in the technology industry but can be used in any industry. A service level agreement is an important component of business procedure with several benefits for organizations, teams, and vendors:

• An SLA establishes trust and peace of mind among all parties involved.

• In specifying the services provided, terms and conditions of the service, and the standard of performance measurement, an SLA aligns everyone’s expectations.

• A consistent and collaborative SLA practice can lead to new business opportunities. Vendors can offer clients transparency, address concerns, and describe a high level of service when all parties contribute to an SLA draft.

Key components of an SLA

Although SLAs can vary across industries, vendors, and types of services rendered, there are several key components of a standard service level agreement:

• Agreement overview
• A list of stakeholders
• The goals of all stakeholders
• A description of services
• Service levels
• A list of services excluded from the agreement
• Conditions of cancellation
• A plan if goals aren’t reached
• Service performance metrics

It’s a good idea to create a basic SLA template and keep it handy, whether you are hiring a vendor or are a vendor offering your services. That way, you can be prepared for any business situation and tailor the template to the needs of stakeholders.

How to write a service level agreement in 5 steps

Follow the steps below to write a service level agreement:

1. Define the service.

Your SLA will need to define and outline the service clearly. Be sure to cover these points:

• List of stakeholders and points of contact, along with their roles
• Service scope, including specific services provided, as well as services excluded
• Customer obligations, including the amount the customer will pay and how frequently
• Vendor obligations, including specific actions the vendor needs to take
• The specific conditions for canceling the agreement, such as when goals remain unmet over a specific time period.

2. Verify service levels.

Service levels quantify the performance or output of a service. For example, a call center might define a service level as the number of calls answered every hour, while a bakery might define a service level as the number of baked goods delivered to a client per day.

Service levels look different for every SLA. Work with stakeholders to verify the deliverables and deadlines.

3. Determine performance metrics.

Clear performance metrics mean stakeholders can determine whether a service has been rendered successfully. Here are some examples of potential SLA metrics:

• Quality of the output: Technical quality for application development can be measured by assessing factors such as program size, coding defects, and platform alignment.

• Defect rates: The number of errors in outputs, which can include coding errors, missed deadlines, and incomplete backups.

• The cost of meeting SLA goals: Some IT customers may include business process metrics into the SLA by using key performance indicators that it already uses to determine business success.

• Security: Network security breaches can happen and they can be costly to deal with. Adding an extra layer of protection in the SLA can help ensure preventative measures are taken.

Include a statement about how metrics will be monitored, such as through different software and business tools or during regular team meetings.

4. Prepare the service level agreement document.

Prepare your service level agreement document using the information you gathered in the first four steps.

What is an indemnification clause?

An indemnification clause is an important component in the SLA, in which the service provider agrees to compensate the customer (most likely a company) for any breaches of service warranties. Indemnification means the service provider must pay the customer for any litigation costs that occur as a result of this breach.

5. Review the SLA with all stakeholders.

Before finalizing the SLA, review the details and invite all stakeholders to offer feedback. After all stakeholders agree to every item, gather signatures on the final SLA and distribute.

What is an earn back?

Some vendors or customers might ask for the ability to earn back service credits if the service has been performed at or above the standard level of service for a certain period of time.

SLA best practices

Remember: An SLA is an important business tool because it can establish trust and peace of mind among stakeholders and enable everyone to expect the same outcomes. Create an SLA template that you can tailor for any business situation.

Here are five SLA best practices to keep in mind:

• For every SLA, ensure all stakeholders agree to everything before the service delivery begins.

• Design an SLA with end users in mind. Who ultimately benefits from the services rendered? How will they benefit? How can the SLA ensure that end users’ needs and desires are met?

• Set realistic and achievable service levels.

• Reserve time to review the SLA, even after the service delivery begins, to make necessary adjustments.

• Use precise terms to define the service, service level, conditions, performance metrics, etc., so stakeholders understand the SLA.

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