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What Is SLA?

service level agreement (SLA)

The rapid developments in tech have led to the rise of many new technologies and procedures around them. Everywhere you turn, you have to familiarize yourself with a new protocol or strategy to remain at the top of your game as a professional. If it’s not data science and analysis, it’s over on the other side with machine learning and ML Ops.

Now that your company is contracting or getting contracts to supply IT-related services, you may have come across something entirely different; SLA. What is SLA, what does it comprise, and why is a service level agreement (SLA) important? Should you have one as a company?

Well, let’s find out.

What Is SLA and How Does It Work?

There are several ways to answer this question, depending on your school of thought. However, we’ll find a way to develop the most basic explanation.

An SLA is a service-level agreement. It is a documented agreement between two parties; a service provider and a customer. Other explanations put an SLA as an agreement or a contract that puts forward a set of deliverables that a party agrees to provide to another.

An SLA also describes what products or services should be delivered during the relationship, while also outlining the metric with which the agreement’s effectiveness is monitored. The contract can be between two businesses, or even one business providing a service to another department within the same organization.

This document’s purpose is to outline the services you expect from a service provider and the level of service to expect. The service-level agreement is designed to create alignment between service providers and customers involved by putting forth clear expectations and providing mechanisms for mitigating issues should they arise.

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Types of SLA

As you can expect, an SLA is not set in stone but rather, can conform to fit the needs of different players in diverse industries and with varying levels of capability. Other SLAs exist, but they can generally be included in three categories. These are:


Multi-level SLAs are usually a preserve of end-user companies who make the request. These contracts are customizable, giving them the latitude to incorporate various conditions and standards. Their range ensures both parties benefit from the completed version of the agreement.

This SLA type can further be broken down into three subcategories:

  1. Corporate: It’s a base document that remains largely unaltered and applies to all customers that your company has.
  2. Client: This SLA is targeted at a specific category of customers and covers every aspect therein. The kind of service on offer is not a factor.
  3. Service: For this document, it covers factors attributable to a particular service regarding a specific group of customers.

Service-Based SLA

This SLA type best suits providers with a single, identical service they extend to all clients. Only one body of standards governs the document, making a service-based SLA very convenient.

Customer-Based SLA

If your company offers different levels and bundles of products and services, you may need to develop individual SLAs that fit your offerings to each customer. A customer-based SLA encompasses details on the service quality while also outlining the level of service they can expect. Customer service teams use SLAs to set expectations for service delivery and performance, response time, and customer satisfaction.

Components of an SLA

The goal of an SLA is to capture the details of what a client and a service provider expect from each other, while governing how they are going to be accountable to each other and the results they should expect during the period they are cooperating.

Several components are necessary to delineate issues like assessment, troubleshooting, SLA performance monitoring, and others to ensure the document is worth the paper it’s printed on. These service level agreement best practices and components are:

A Summary of The Document

It is usually the first item to go on the draft and is the overview of the agreement, denoting the service or products that you should deliver or receive and how the project is measured.

Strategic Goals for Parties Involved

For SLAs between a business and customers, the goals to be included in the agreement primarily belong to the customer. If you’re the party providing the products or service, you can capture their needs and how your abilities allow your business to fulfill those needs. With this information, you can now come up with measurable goals you can feasibly meet.

Both teams outline their expectations for internal SLAs, and it’s typical for the sales team to have one with the marketing team.

Requirements From Both Parties

Each party should state what they require to enable them to achieve their goals. If an agreement involves a customer, it would be prudent to note the customer’s needs may go beyond simply desiring the product or service. They may need frequent communications such as consulting, technical maintenance, and reporting.

If internal, each party states what they’ll need from the other party for effective functioning. It may be weekly briefings or reports.

Points of Contact

As each party needs to be in constant communication, it’s important to forward the people who will be the point of contact from either side. These persons are responsible for passing communication between the two parties in the agreement.

Contingency Plans

It’s not always that you’re both going to meet the set goals. What should happen if you fall short of expectations? Formal consequences are essential to keep both parties on the straight and narrow. These effects are primarily expressed in compensation, such as service credits.

Conditions For Cancellation

In some instances, both parties may want to terminate the agreement for various reasons. Conditions for cancellations are also necessary, especially if one party is not meeting their end of the bargain.

What Is the SLA Penalty?

The signing of any agreement is the beginning of a mutually beneficial relationship. It’s not always possible or plausible that both parties will stay true to the contract. There have to be penalties for violations of the agreement in such cases. The type and amount of liability depend on what you want and agree on, but there are typically two types of penalties.

These are:

  • Financial penalty – A service provider, or a customer, may receive a financial penalty in cases where damages occur. The amount to be paid will be dependent on the duration or severity of the damage and may not always be a full reimbursement.
  • Service Credit – In other cases, a customer or provider may claim service credits that they can use in the future as a form of discount.

What Metrics Does an SLA Monitor?

The performance metrics to be agreed upon by the parties depend on the kind of services or products to be provided. Many items can be included and monitored as a part of an SLA. It is in both parties’ best interests to have the agreement made as simple as possible to avoid increased costs or confusion.

Since SLAs are typically a part of IT service agreements, most metrics tend to be qualitative rather than quantitative. Keeping the deal straightforward makes it easy to monitor. A complex agreement means it is costlier to track, as it will require more staffing and other resources. Your ideal bet for accurate monitoring is with automated systems, as they allow for an accessible collection of metric data.

Here are a few SLA performance metrics you can consider for your SLA agreements, based on the service you want to provide or consume.

Service Availability

This refers to the amount of time the specific service is available. This accessibility is typically measured in terms of time slots. You may have come across statements such as 99.999% availability between 8 AM to 6 PM, which can also extend to other specified times.

If you’re running e-commerce applications, you can encounter statements such as 99.999% uptime annually. That last statement means the service is not available for about 5 minutes during an entire year, which is quite an exaggeration of capabilities. However, 5 minutes of downtime can denote that a business loses thousands of dollars in revenue.

Defect Rates

It’s simply the percentage of errors encountered with significant deliverables. Production failures are not uncommon, and they can manifest as incomplete backups or restores, coding errors and reworks, plus other missed targets or deadlines.

Technical Quality

This metric is standard when you are outsourcing application development work. The technical quality measurement or analysis is conducted using commercial analysis tools that look at coding effects, program size, and effects on memory.


This is an important metric, especially for professional services that require sensitive information such as logins, biometric data, or financial details. It examines controllable security measures whose purpose is to prevent intrusion. These can include getting rid of bugs via updates, antivirus, anti-ransom, and anti-malware updates, as well as patching. They are essential to proving reasonable preventative actions have been taken should an incident arise.

Business Results

It’s normal to come across customers who would want to integrate their business metrics into the SLA. A simple way to achieve this is to use their KPIs, as long as they are measurable.

Need Help Drafting an SLA?

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Caitlin Good

Denver-based content marketing manager for Syncro. Curator of new experiences: creating compelling and helpful content on the weekday, exploring nature and cities on the weekend.

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