What is a Service Level Agreement?
Service level agreements (SLAs) exist to define the expectations surrounding the services a company provides to its customers. They tell an individual what’s important to know or understand about the way a service is provided, as well as the consequences for not providing the service to the level promised.
SLAs help both the supplier and the customer better understand the parameters of an agreement as well as the consequences of not meeting an expectation. Most often, SLAs exist between a customer and an external supplier, but it’s also possible for them to exist between two departments within the same company.
Why should you provide or request an SLA?
Service level agreements serve a few different purposes. They’re commonly used to set expectations, make clear the consequences of not meeting expectations, attract customers, provide accountability for both parties in an agreement, and define industry standards for the type of service being provided.
Use SLAs to set expectations and understand consequences
SLAs are important because they help create an understanding between a customer and supplier about what they can expect from the services being provided. If an issue occurs with the service, an SLA guarantees both parties know what to expect and how the issue will be remedied. Simply put: SLAs are like setting ground rules before an engagement begins. It’s much easier to do this at the beginning before any issues arise than it is once an issue has popped up.
Attract more customers
Sometimes, businesses use SLAs to entice new customers. One famous example of this is GEICO’s popular SLA that “15 minutes could save you 15 percent or more on car insurance.” An individual in the market for car insurance is more likely to consider GEICO’s services knowing their promise that in only 15 minutes they can save 15 percent (or more) on their car insurance costs. In terms of attracting customers, it’s important for a company to live up to their stated SLAs. Imagine what customers would say about GEICO if the reality was that it took over an hour on the phone and most people didn’t get any savings on their auto insurance policy.
SLAs are a great way to hold all parties in an agreement to a certain level of accountability. In the case of a vendor, not only are they promising to do something for their customer, but they are also promising to do it to a certain level of quality and stating the consequences of not meeting their promise. At the same time, SLAs can be important for holding customers accountable. For example, if a client has agreed to provide feedback within five business days, the SLA will state this, along with what happens if the customer doesn’t provide feedback in that timeframe.
Remember, SLAs can also be between internal team members. Many of us working in in-house legal departments understand that other departments expect results from us on a certain timeframe. Even if not formally written down, these expectations are part of an SLA with our internal teams.
SLAs help define industry standards, which can also help your company set itself apart from competitors. If a typical SLA for the type of service a company provides is 30 days and your company can offer the same service in 15 days, this is going to differentiate you from other service providers. The same is true if you’re the one shopping for a vendor: You may look for partners that can meet or exceed the typical SLAs for the type of service they provide.
The five elements of a service level agreement
SLAs typically include five distinct pieces: service, expectation, failure, response, and remedy. When drafting an SLA, it’s important to meet with others in your business to clearly define these five elements, since you (as in-house counsel) likely aren’t responsible for delivering on every aspect of the SLA.
We’ll dive deeper into each of the five elements shortly, but first let’s use an example from everyone’s favorite Pizza restaurant, Dominos, to gain a better understanding of each.
While it’s a little questionable whether or not it still exists, you probably heard a commercial at some point promising that Dominos will deliver your pizza within 30 minutes otherwise you get it for free.
In this example, Domino’s defines the service as the delivery of your delicious pizza. They set the expectation that you will receive said pizza in 30 minutes or less and define anything over the half hour mark as a failure to meet that expectation. If Dominos fails to deliver the pizza in 30 minutes or less you can expect them to communicate their inaccuracy and remedy the situation by giving you your pizza free of charge.
Now that you have a baseline understanding of SLAs (and a craving for pizza), let’s dig into each of the five elements.
When it comes to establishing a SLA, the first step is talking to your business to determine the services(s) they would like to have subject to one. If your business is unsure what services they should subject to an SLA, you can help by researching what service levels leaders in your industry provide and why.
If your business does not provide SLAs but is using a vendor to support its operations then you should expect the vendor to provide one. If the vendor doesn’t provide an SLA, you should request one.
Once your business has agreed upon which service(s) are subject to the SLA, you need to discuss the expectations they want to set around how those services will be provided. Expectation levels should be set for customer service, availability, uptime, latency, and packet loss to name a few. It’s important to set levels for each of these services
After the service and expectation levels are decided upon, the next step is defining what a failure to meet the service level looks like. For example, a failure may mean uptime availability falls below the specified level or turnaround time exceeds the promised amount.
When determining failures, you need to consider the criticality of the service and whether it makes sense or not to treat failures of different service levels the same. If not, you’ll need to distinguish between failures of differing significance and create different escalation paths for each
Now that the services, levels, and failures are defined, you need to determine what the response to failure will be. All SLAs must include an escalation path when a service level failure occurs. This can be a phone number, email address, or in some cases direction to a ticketing system. The SLA should also include the frequency of which the customer can expect status updates up until resolution.
Although your business will be the ultimate decider when it comes to the appropriate response to a failure, it is your job as in-house counsel to ensure that failures are defined acceptably from a legal standpoint. When drafting an SLA, ask the business if they want to include recommendations for less critical errors in the communication framework such as an FAQ page or troubleshooting site.
The last element of an SLA is the remedy or resolution. This should include the time in which the business can commit to responding to the failure as well as the time they can commit to resolving it. The legal team should be sure to include specific language on how response time will be measured so the customer can set expectations properly. Businesses may also want to consider including a right of termination for persistent failures.
Negotiating service level agreements
Two areas of SLAs that can (and should) be negotiated are level commitments and credits. If a vendor has committed to an uptime of 99.0 percent, you can ask for an increase to 99.9 percent. If they don’t agree, consider settling on 99.5 percent instead. The same goes for turnaround times. If the promise is that 85 percent of emails are answered within a minute, ask if that number can be increased to 90 percent.
When it comes to credits, negotiating is pretty much a must! You should always request higher credit amounts or ask that they be automatic. On the flipside, if you’re asked to agree to a higher credit amount, you can counter by measuring uptime on a quarterly basis rather than monthly.
When it comes to negotiating SLAs, just be sure that any changes you are asking are within reason for the product, service, and industry. Otherwise, you’re sure to be met with a no.
You can’t always negotiate SLAs
When it comes to a sophisticated vendor, you won’t have as much leeway in negotiations. Large companies often have robust support teams in place and managing thousands of different SLAs just wouldn’t be practical. Creating a specific process for your SLA could cause a failure that might not have otherwise occurred.
Sophisticated vendors usually have specific escalation paths in place for each level of failure. These established channels are not going to be changed for you. If you do manage to secure a different agreement, your client should be prepared to pay a higher price. Otherwise, accepting the standard is likely your only option.
Tips for negotiating service level agreements (when possible)
Assuming you’re in a position to negotiate, here are my top three tips on how to do so in a way that will most benefit your organization.
1. Ask for a higher commitment level, primarily on uptime in a SaaS agreement. So, if the uptime commitment is 99.5% you can ask for 99.9%.
2. Ask for a higher credit amount in the event of service failure.
3. Ask for credits to be provided to you automatically, so that you won’t miss out on getting one because you did not submit a ticket, etc.
Obviously, this quick blog isn’t a masterclass in negotiating SLAs. For a deeper dive, check out my recorded webinar covering many more tips.