What is SLA? Definition, Types, Components, Metrics & Steps

Service Level Agreement, or SLA for short, is an important document in the form of a contract that serves to formalize the collaboration agreement between two parties, typically a company and a service provider.

This document includes agreements, rules, and service standards agreed upon by both parties before the collaboration is approved.

If your business will engage in a partnership or order services from an external vendor, you need to learn about the Service Level Agreement beforehand.

Discover what is SLA, its function, elements, and types, as well as the stages in the following article.

What Is SLA (Service Level Agreement)? 

As many as 85% of marketing teams stated that their marketing strategies have proven to be much more effective with SLA (HubSpot, 2020).

In the business context, this contractual document is used in the collaboration between two parties; the client company and the service provider.

This document contains service explanations and standards, provisions, production mechanisms, parameters for reviewing performance or service quality, and potential penalties if the collaboration does not proceed as agreed.

Since SLA is a contractual agreement, this document is not created by just one party. Both the client and the vendor, need to agree on all the terms stated in it before the collaboration takes place.

Types of SLA

In general, this document of service agreement can be divided into 3 specific categories based on its intended use. They are:

1. Internal Service Level Agreement

It is a type of agreement between two parties from different divisions within a company. This type is commonly used to facilitate collaboration between two teams to achieve a common goal.

2. Customer Service Level Agreement

This type is also often referred to as an external service agreement. It is generally implemented in collaboration agreements between a vendor and a consumer when ordering a service.

For example, if a healthcare company orders SEO Services for 2 years, then the company and the service provider need to draft a comprehensive document as the Customer Service Level Agreement.

3. Multilevel Service Level Agreement

It is an agreement document designed to divide the agreement into various specific levels, such as: 

• Corporate-level: Covers Service Level Management (SLM) issues for clients across the entire organization.
• Customer-level: Encompasses all service agreement issues with a specific client, regardless of the type of ordered service.
• Service-level: Involves SLM issues based on the services used.

For example, cmlabs, an SEO Service provider, offers separate service packages to potential clients. In this case, a Multilevel Service Level Agreement would be required when a client orders another cmlabs service, e.g. Article Writing Service, to support the main service.

SLA Components

This service agreement document encompasses various aspects. In general, SLA has six fundamental components, such as:

• Agreement Overview: You should outline some of the fundamental things, from the involved parties, the duration of collaboration, service scope, and the OKRs.
• Goals & Objectives: Subsequently, you need to incorporate the goals of the collaboration. These objectives need to be clearly articulated from both the customer and service provider perspectives.
• Stakeholders: Information about stakeholder identification should be included in the document to elucidate the responsible teams and their respective tasks. 
• Periodic Review: This periodic evaluation is used to monitor the agreement document and ensure it remains relevant.
• Service Agreement: Typically elaborates on the terms and conditions of a service in a specific manner. These terms may include performance metrics, deadlines, and success rate parameters as agreed upon initially.
• Service Management: Focuses more on operational procedure management, team responsibilities, and handling of complaints or incidents that may occur during the collaboration.
• Penalty: These penalties can include financial fines, service cost reductions, and others.
• Signature: This section confirms that all parties have read, understood, and agreed to all the terms outlined in the agreement.

SLA Metrics

After understanding what is SLA, you might be curious about the metrics typically presented in this agreement document.

This metric is used to measure the performance and quality of the ordered services. Here are some metrics that should be included:

• Average Speed to Answer (ASA): To indicate the average response time (measured in seconds).
• Abandonment Rate: To identify the percentage of calls abandoned when potential clients contact customer service.
• Time Service Factor (TSF): To show the percentage of calls answered by customer service within a specific timeframe.
• First Call Resolution (FCR): To review how effectively solutions provided by the service provider address potential client issues on the first call.
• Turn Around Time (TAT): To indicate the time taken to complete a specific project or task.
• Mean Time to Recover (MTTR): To review the amount of time it takes to recover a service when it is stopped.
• Total Resolution Time (TRT): To sum up the total time spent on a task.
• Uptime: To show the percentage of active network time, including required maintenance schedules.

SLA Stages

To delve deeper into the concept, you need to learn the stages that need to be carried out below:

1. Drafting & Documentation

This stage marks the beginning of forming the service agreement. In this stage, the service provider and prospective client will collaborate to build the document service requirements.

During this stage, you can outline performance parameters, the responsibilities of each party, and the measurement methods to be used.

After the drafting stage, you then need to establish ownership of the master document and ensure that all involved parties have retained their copies. 

2. Elaboration & Socialization

Once the document is created, the next step is to ensure that all parties understand the entire agreement thoroughly.

In this stage, the entire team involved in the collaboration will be provided with explanations regarding the metrics to be measured, procedures for handling complaints or disruptions, and the consequences of SLA violations.

3. Monitoring

In this stage, the service provider will regularly monitor service performance according to the parameters agreed upon by both parties.

This stage generally includes measuring response time, service availability, customer satisfaction levels, and several other metrics as previously explained.

The results of this monitoring are then used to evaluate the extent to which the service agreement has been adhered to. Additionally, this monitoring can also help both parties identify potential improvements and ensure that the service complies with the established standards.

How to Monitor the Performance of the Service Level Agreement?

As a client, you need to periodically monitor the overall performance of the Service Level Agreement.

The first method of monitoring can be through regular meetings. This means both parties need to organize weekly meetings to review various metrics within the document.

Alternatively, clients can also monitor the success rate by reviewing a database containing data and statistics related to this performance.

From this database, clients can ensure that the service provider has adhered to the commitments and can promptly respond to changes or improvements needed.

What Are The Common Penalties?

If the service provider fails to fulfill the responsibilities outlined in the Service Level Agreement, there is a high likelihood that they will face penalties.

Some types of penalties in SLA are:

• Financial penalties by paying fines based on the agreed-upon penalty amount.
• Service credits involving discounts for the next booking period as a form of compensation.
• Free (or low-cost) license extensions while the service provider takes effective corrective actions.

That was the complete explanation of what is SLA, its types, components, agreement metrics, stages, and how to monitor it. 

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