What is an SLA?

A service-level agreement is a formalized document that sets out a company’s expectations from service providers. It sets a standard for the provider to measure up to while helping the client receive the best possible service. Detailing KPIs such as timeliness, quality and responsibilities helps you maintain consistently high standards and grow your reputation.

If a vendor falls short of the promises outlined in anSLA, they’re accountable for the remedies and consequences also included in the agreement.

What’s the purpose of service-level agreements?

SLAs establish trust and signal that not meeting standards has consequences, whether they relate to service responsiveness, uptime, product quality or any other appropriate metric. They’re benchmarks you’re committed to achieving as a business, helping you provide exceptional service.

Implementing SLAs improves customer experience because they contribute to an environment in which clients receive consistent service. Instead of feeling the insecurity of not knowing how long a product might take to arrive or how reliable it might be, end users have peace of mind. If a vendor fails to meet the SLA’s terms, there’s a clear set of consequences and accountabilities to ensure you or your customers don’t pay for their mistakes.

Repercussions in case SLA terms aren’t met could be refunds, penalties or other consequences. Sharing them openly showcases you’re dedicated to transparency and openness, promoting mutual respect and trust.

B2B vs. B2C SLAs

SLAs apply in B2B and B2C industries, although they’re often more applicable in the B2B sector. That’s because businesses serving other companies tend to offer more complex and technical services, which SLAs can help to break down and clarify. Stakes are typically higher, for example, when it comes to downtime, which means creating performance criteria and holding service providers accountable are paramount. SLAs are excellent tools for fostering long-term trust and establishing mutual respect, helping you build long-lasting relationships with service providers.

Service-level agreements have utility for B2C companies, including, but not limited to, tech providers offering apps, software or cloud services. In recent years, a growing number of companies in various industries are using SLAs, such as those in e-commerce, banking, health care, retail, logistics and real estate. They might not be outlined as explicitly as they would be in a B2B setting, instead looking more like service guarantees or promises.

Examples ofSLAs

Service-level agreements have utility in a wide range of industries, with the examples below relating to e-commerce and health care. Keep in mind that service-level agreements are often large, comprehensive documents containing many terms, conditions and stipulations. The following are simplified versions that provide a framework to help you understand what to include when creating your own.

E-commerce

This service-level agreement example is between an e-commerce vendor and their logistics partner. The end goal is to ensure customers receive goods in a timely manner, in pristine condition and can reliably track packages.

Here are the key terms:

• Delivery window: Ensure 95% of all standard delivery shipments arrive as promised within the two-day delivery window.
• Package condition: All products must be delivered intact, without any superficial or internal damage. It’s the responsibility of the logistics provider to replace or compensate customers when these standards aren’t met.
• Tracking: Customers should receive tracking updates that are 99% accurate, with real-time updates sent every 8 hours.
• Support response: Customer complaints or inquiries must be addressed within 12 hours of receipt.
• Consequences of not meeting terms: For each day beyond the stipulated delivery window, the logistics provider refunds 5% of the shipping fee. The logistics provider is liable for damaged goods costs, as all shipments are thoroughly quality-assessed before being marked as ready to send.

Health care

This SLA example outlines the agreement between a hospital and the diagnostic laboratory it’s partnered with. It aims to ensure the health care provider gets timely and accurate results so it can guarantee patients the best possible care.

Let’s look at the terms:

• Turnaround time: All standard diagnostic tests should be completed and the hospital should receive results no less than 24 hours after the lab gets the sample.
• Accuracy: The laboratory must commit to an error rate of below 0.5%.
• Equipment downtime: Major downtime or significant equipment malfunction should be communicated to the hospital within 2 hours to allow time for enacting contingency plans.
• Data security: Customer data must be encrypted and transmitted securely and comply with all local and national data protection regulations.
• Consequences of not meeting terms: For every hour beyond the 24-hour delay, the lab provides a 2% discount on testing costs. If the error threshold is broken, tests should be retaken at no additional cost.

Customizing and implementing SLAs

Instead of using generic service-level agreements, customize them to your business goals and target audience . Here are the steps to take to design and implement SLAs at your company:

1. Assess your business needs: Analyze your organizational goals, collaborator expectations and common challenges faced by your company. Use a SWOT (strengths, weaknesses, opportunities, threats) analysis with senior decision-makers to gather insights and pinpoint areas that could benefit from SLA coverage.
2. Establish KPIs: Use specific metrics to determine if you’re meeting desired standards. For instance, for a customer support team, KPIs might include resolution rate or response time.
3. Implement the SLA: Be sure to introduce SLAs and explain them to your internal team and vendors to maximize buy-in and understanding. Make sure the document is easily accessible and integrate SLA metrics into existing software, such as your company’s CRM or logistics tracking software.
4. Monitor and report: Don’t just introduce service-level agreements, regularly track them and provide feedback to business partners to get the most out of them. Measure them in real time using software, schedule periodic performance reviews and encourage open feedback from service providers and employees.
5. Review and refine: SLAs should regularly be refined to ensure they’re realistic, effective and aligned with business goals. Aim to review them once every quarter or six months, depending on the scope of your operation.

Tools for continuous improvement

Now that you understand SLA’s meaning, you’ve likely got a good idea of whether they can help you build trust with clients and gain competitive advantage in your industry. By setting standards and holding yourself and your partners accountable to them, you can guarantee excellent service to clients. SLAs are tools for continuous improvement, enabling you to build a strong reputation and inspire confidence with clients.

If you’re committed to continuous improvement and accountability, creating SLAs and sharing them with customers could help you maintain high standards and stand out ahead of competitors.

SLA meaning FAQs

Can you modify an SLA after signing it?

Yes, it’s possible to modify SLAs after they’ve been signed. However, it’s crucial that you and the relevant third parties are in mutual agreement about the new terms. If they question your decision, let them know that regular reviews are an important part of ensuring service-level agreements are relevant and useful.

AreSLAs legally binding?

Service-level agreements can be legally binding, but only if they’re integrated into a formal contract. They outline expectations, obligations and potential consequences for not meeting terms, making them very similar to contracts. That said, they don’t typically carry legal repercussions and tend to be informal agreements or guidelines.

What’s the difference betweenSLAs and KPIs?

KPIs and SLAs both act as benchmarks for performance, but a service-level agreement is externally focused and has more scope. Although SLAs contain KPIs, they’re more than a metric. KPIs are internal measures of performance that help drive productivity, identify bottlenecks and motivate staff. SLAs establish expectations, using KPIs to measure how effectively a business partnership is operating.