What is a Service Level Agreement or SLA? Definition, Importance and Examples

Service-Level agreement or SLA is a Commitment between the service provider and the client which covers multiple aspects of services. It covers a lot of ground and mainly covers availability quality and responsibilities which are agreed between the service user and the service provider and append down in terms of an agreement.

What is SLA?

The service-level agreement serves as a guide to the service provider as to which services or aspects of the service and reminded by the customer and should be provided while providing the service. It defines the service and the terms of service which are sold in a simple language understood by the customer and the service provider.

A typical example of service level agreement is the agreement included by Internet service providers and Telecom companies who offer cloud computing and therefore who include service level contracts with customers to define the levels of service which will be provided along with all terms and conditions.

Service agreement usually has a technical definition of MTBF, which is the abbreviation of the meantime between failure, mean time to repair or mean time to recovery, identifying which party is responsible for late payment of fees or reporting faults. Service level agreement is usually between two or more parties in which one is a service provider, and the other is the customer. This agreement can be a legally binding contract or an informal contract, and it involves many teams within one organization or one team within different organizations.

Service level agreements are supported by Operational level agreements that are formed by internal groups. It is not a service level agreement if the customer does not accept one of the terms and conditions. There are many components in the service level agreements like a definition of services up till the termination of the contract. Demarcation is usually included in specific lines of the agreement so that these agreements are met consistently, and the parties are expected to keep open communication.

Specific provisions are made regarding penalties and records, and most of the service level agreements also have a provision for making amendments to make changes and implement them to update the contract accordingly. Service level agreements have been used since the 1980s by specific telecom operators. These days there used by many organizations, and they have different and multiple service level agreements that are present within the company.

There are, in fact, various units within the same organization that have a service level agreement with one unit playing the service provider and the other unit being the customer. This ensures that the same quality of service is maintained among different units in the organization as well as out of the organization. Preparing service level agreement inside the organization also helps to compare the quality of service between various departments as well as with external customers.

Forms of Service Level Agreement

There are multiple forms of service-level agreements. These forms may differ due to service-level agreement sla or based on use and type of business which are defined as follows:

1. Customer-based Service Level Agreement:

This is an agreement in which individual customer or a group of customers are covered in the agreement for all the services that they use. An example of a customer-based service agreement would be a contract between a supplier of IT service and the finance department or corporate office of Conglomerate organisation.

The services are used for different departments as well as for various functions of the same department like payroll system, finance system procurement of purchase system as well as billing system etc.

2. Service-based Service level agreement

This is the agreement for all the customers who are using the services of the service provider. For example, the mobile service provider will charge for specific maintenance as a part of the offer with universal charging. Another example would be an email system, which is a service for the entire organization.

3. Multilevel service level agreement

In this case, the service there was agreement divided into multiple level of service, which address a different set of customers for the same set of services in the same service level agreement. Corporate level service level agreement is the one that covers all the service level management issues which are relevant to all the customers throughout the entire organization.

These issues may be Volatile, which is why the updates are not required frequently. In the case of customer level service level agreement, it covers all the service level management issues related to a specific group of customers irrespective of the services that are being used. In the case of service level – service level agreement, it covers all the services and issues that are specific to specific services.

What is involved in a service level agreement?

The typical service level agreement will have the following components

1. Type of service

This specifies the type of service which is to be provided additional details related to the service are mentioned in the service level agreement. In case of network connectivity or the kind of service, it will describe the operation and maintenance of the equipment along with the connection and the bandwidth to be provided to the customer.

2. Expected performance

A service which has minimum disruptions and is available to the customer at almost all the times is the one which is considered as reliable service. The expected level of performance of the service, along with its reliability and responsiveness, is also mentioned in the service level agreement.

When the service has got the responsiveness and the expected action is performed promptly, or the troubleshooting is done immediately as the customer request for it then that services term to be reliable and responsive service.

3. Monitoring process

This part describes how the performance levels are monitored and supervised in case of service the weather reporting. Different types of statistical data are gathered, and the frequency of statistics gathering is accessible by the customer; if such is the case, then the service level agreement is termed to be well-performing.

4. Steps to report issues

This part will specify the reporting method if a problem arises for the customer. There will be contact details mentioned here along with the nature of the details of the issue that have to be provided in the report. This part also specifies a time frame within which the problem will possibly be looked into and solved on priority.

5. Backlash for not meeting the commitment to customer

This part specifies the consequences that the service provider will have to face if he does not meet the requirements which are mentioned in the service level agreement.

These consequences may include but are not limited to the customer’s authority to terminate the contract immediately or ask for a refund for the losses that have been incurred by the customer because the service provider could not provide the service.

Metrics to be monitored in Services level agreement

The services that are being provided for determining the type of service level agreement metrics that are required. To avoid confusion, the scheme should be kept very simple and also because it costs a lot. A decision has to be taken about what is more critical while examining your operation. The effectiveness of the scheme is directly proportional to the complexity of monitoring.

The available collection of data opts whenever in doubt, and the most reliable systems are automated once since they will be more reliable than the cost to the manual counterparts. Following are few of the types of metrics to include depending on service

1. Availability of service: Number of times the services are used to measure the availability of service. For example, 99.9% of service availability is expected from 8 AM to 5 PM. Moreover, this availability is required during other times. Typically e-commerce companies have been aggressive service level agreements at all times, and their uptime is more than 99.9%, which helps them to generate millions of dollars every hour.
2. Defects: Percentage of errors or production failures are included in this category.
3. Technical quality: Factors such as coding defects or program size are analyzed by commercial and assistance in case of outsourced application development.
4. Security: Security is of paramount importance during recent times because network breach can be costly for the organization. Updating antivirus now and then and measuring and updating the security measures should be done from time to time.
5. Business results: Service level agreements are used to process metrics by many customers. Key performance indicators are used and calculated to approach vendor contribution.

Other metrics:

Abandonment rate: the number of times the customer calls were waiting, and calls were abandoned.

The average speed to answer is calculated in seconds, which measures the time taken by the service desk to answer the call. It is abbreviated as ASA.

Time service Factor: it is the percentage of calls that are answered within a specific timeframe.

For example, 70% of calls answered in 10 seconds.

First call resolution: The number of calls that are resolved In the first call and the customer does not have to call back to solve the case.

Turn Around Time is time to complete the task assigned.

The mean time to recover is the time which is taken to improve because of a service outage or any other similar hurdle.

How to make Service level agreement?

A standard set of shared goals is required as the first step to draft your service Level agreement. The alignment can then make service level agreement which will reflect these goals.

1. Numerical marketing goal

Concrete goals should be in place for every campaign that is to be run from the marketing department. It should also have a high-level numerical goal which will align with the operations of the sales department. Sales teams focus on their sales targets, which are numerical.

Their jobs depend on those numbers, and if marketing departments can align to a similar numerical goal, then the team can be accountable in the same manner like sales. The idea is to ensure that your purpose of marketing should power the measurable objectives of the sales team. Following are the four metrics which are needed to calculate the marketing side of service level agreement:

1. Total sales in terms of revenue
2. Percentage of income from marketing leads
3. Average sales deal
4. Average lead to customer closing probability

Then calculations are performed.

Sales target * % of revenue from Marketing leads = Marketing revenue goal.

Marketing goals / Average sales deals = Total number of customers which are required

customers / Average lead to customer closing = The total number of leads that are needed.

2. Split goals

Usually, a practice is followed that every month the service level agreement of the marketing side is evaluated and the factors which can affect the numbers in your calculation are considered.

There are many things which are monitored and services and agreements every month like several marketing-generated seeds, several customers from the seeds, total revenue generation from those customers, total revenue closed that month from marketing teams, and the total revenue for the month.

With this information, you can re-calculate monthly or quarterly or yearly as per the requirement in the organization.

Number of leads generated by marketing that became customers/number of marketing-generated heat = lead to customer percentage closing

Revenue generated from close to customers / total number of marketing = the size of the Sales deal

The total income earned from marketing-generated needs / total revenue which is closed = percentage of total revenue from marketing-generated leads

Sometimes quality and quantity are also incorporated in these metrics. The calculations performed above can provide a quantitative volume of marketing-generated leads.

3. Calculation of sales figures and their targets

Sales teams in service level agreements should determine the speed and the depth of the salesperson. Following are the two statistics which are considered for establishing the end of the sale of the service level agreement:

1. A followup of a salesperson if done within an hour, will possibly have seven times more meaningful conversation.
2. As less as 7% of leads respond to followups within 5 minutes of filling the form.

Not everyone leads require the sales team to be sent to immediately because sometimes certain activity levels should be met at a minimum level which will be possible only after nurtured and processed by marketing. It is essential that after that, it is converted, the relationship should be maintained. Either team should take an action item order to build a relationship with the customer, which will make the nurturing easier for the salesperson. This is why the total number of leads obtained are to be recorded, which will be based on marketing service level agreements.

4. Reporting for marketing service level agreement:

Since the goals are already established, it is possible to track the progress against that goal either daily monthly weekly or quarterly.

5. Reporting for sales service level agreements

There will be two graphs for services there was agreement reporting, which will monitor the speed of follow-up and the depth of the monitoring. To represent the speed of follow up, date/ time is required when the salesperson followed up the first time with the lead. The difference between both of those times will be equal to sales to follow up with that lead.

Why is SLA Important?

1. Customer relationship: Service the weather agreement strengthens the connection of customers with the service provider. Customers may have many doubts which are cleared with the help of service the weather agreement, and the service provider can stay transparent while dealing with the customer.
2. An effective service level agreement will help to generate new business. Customers often change and move to competitors because the service providers are inattentive to the issues and the request of the customer. If the services provider is thorough with his agreement and provides accurate service word to word as mentioned in the agreement, then it will be a new business for the service provider. The customer, if satisfied, will be word of mouth for other customers.
3. Strengthens existing customer relations: As long as the service providers honor the service level agreement, it keeps the customer happy and helps to build long-lasting relationships with the customers.
4. Clear boundaries are set by the Service service agreement between the customer and the service provider. Well, defined service reasonable agreement will provide clear expectations to the customer and will help the customer do not expect anything which is not mentioned in the agreement. It was set the expectations of the customer, and he was not demand anything extraordinary, which is non-compliant and neither mentioned in the agreement.

Advantages

1. The expectation of the customer is to be written on the service level agreement, which will describe the core services that are being provided to the customer.
2. The details of responsibilities that are to be taken by the customer as well as the service provider are mentioned in the service level agreement, which makes it easier for both of parties to adhere to them.
3. Service agreement allows the provision of customer feedback, which always helped and innovated the services by making improvements in them.
4. All the points of service are included in the service level agreement, which sets the expectation benchmark of the customer, and the customer is aware of what to expect from the service provider.
5. During legal trials, if the customer complains that his expectations are not met within the service provider can use show the agreement.

Disadvantages

1. Since everything is mentioned word to word of the service provider has to ensure that the quality is maintained as it is mentioned in the contract.
2. If the service provider for the below the committed quality then because the contract is legally binding on both the parties the customer can go and take legal help to make sure that the service provider is up to mark.
3. The credit or the refund, whichever maybe should as per mentioned in the contract and should not diverge from the normal process under any circumstances. Sometimes it is challenging to adhere these terms of refund for the service provider.