Service-level agreement (SLA) basics to improve your SaaS buying process

When you entrust a supplier with your business, most often, the focus is on features and functionality. It's one of the first stops for negotiation and the most visible part of the deal. This makes sense — getting the right tool for the job is the key to an optimal outcome. While good price and feature negotiation is part of a well-oiled SaaS buying process, there’s another important aspect to consider. 

Your supplier relationship management should also consider service-level requirements.

Why? Because all the great features in the world can’t help you or your users if a third-party service goes down.

Ensuring continuity in service is important. One of the advantages of negotiation in procurement is in securing not just price, but dependability. Doing so leaves nothing to chance and ensures you can rely on your supplier to do what they promise.

The service-level terms of the deal fall under a service-level agreement (SLA). This agreement may be separate from your contract or a clause therein. In either case, it's an important piece of documentation for vendor relationship management.

What is a service-level agreement (SLA)?

A service-level agreement, or SLA, is a contract that outlines obligations and responsibilities of each party. The purchase agreement outlines terms such as price, contract length, and features. The SLA determines what happens once you sign the contract.

The details of the SLA depend upon the type of service provided by your supplier. An SLA can be helpful in covering a range of outcomes: Uptime, availability, and even performance metrics like customer service.

The SLA protects you from issues with service or reliability. Likewise, it ensures you will engage with the service as expected, remaining within the expected scope of use. A well-written SLA is not unilateral. It can protect the interests of both sides to ensure a long, beneficial relationship.

Why do you need a service-level agreement?

An SLA is not a “nice to have.” In fact, it's an important component in your own service offering. With increasing interdependence, third-party services may have a critical impact on your own services. When one system falters, it jeopardizes not only the supplier relationship, but the one between your company and its users.

An SLA ensures that each link in the service supplier chain is able to meet its obligations. It does this in several ways. Here are just three examples (keep in mind, there are many other ways in addition to the three below):

1. Outlining expectations

It's important to know what you’re owed. When you have clearly-outlined service-level commitment from your supplier, you know what to expect. First, you'll know what features and support are available to you on a determined schedule. You'll be able to prepare for scheduled maintenance, know your data storage expectations, etc.

It also sets expectations for when you face service issues. For instance, when an interruption occurs, you’ll know who to call for resolution. Documentation will outline when and how to proceed, and what remedies are appropriate. A good SLA will also outline the response times expected of your supplier in case of issues.

2. Ensuring accountability

The true power of the SLA is that it gives recourse for when things go wrong. This may include remedies for data loss or financial recourse (discounts) if your supplier falls short of the mark. A strong SLA outlines obligations and incentivizes your supplier to meet them.

The severity and scope of recourse aligns with the importance of the service. If the service is critical (say, hosting for cloud servers) the non-performance clause should reflect that.

3. Strengthening your own service-level commitments

Making promises without considering impact from your upstream service providers isn't best practice. To make a specific service promise (for instance, the coveted 99.9% uptime) you must ensure suppliers supporting you can back that claim. Getting a well-defined, well-negotiated SLA in place creates a sound basis for your own service-level promises.

Service-level agreement example: What to include

Every agreement is different based on the priority, type, and level of service agreed. No matter the agreement, SLAs should have the components necessary for clarity and enforcement:

• Scope: What services and features suppliers promise under the agreement. Also, what assurances the user makes for use within scope.
• Outcome: The desired product of the agreement. What the user will gain by contracting with the supplier for services.
• Measurement: What metrics the supplier and client will use to measure the success of the contract.
• Management: How the supplier will ensure service, and how to resolve issues.
• Recourse: What happens if objectives or service levels are not met, as well as the delivery method for remedy. 

Common terms and protections in an SLA

If your SaaS buying requirements include an SLA, there are several key terms and components you want to know.

Service commitment

• Uptime/downtime: Uptime is time the service is available for use. Uptime is usually expressed as a percentage of total possible hours. 99.9% uptime is a frequent SLA promise, but supplier commitments between 99.0% and 99.9% are common. The important part is that your supplier commits to the percentage they agree on.
• Maintenance window: Uptime is important, but an SLA should also define the time periods when a service must be down. The contract should outline when maintenance windows occur and for how long. These agreed-upon windows allow the supplier to improve service and avoid unexpected outages. Negotiating windows to fall outside expected peak hours of operation is best practice.

Remedies

• Monetary penalty: When a service falls short of its SLA commitment, your contract may stipulate penalties. It outlines the damages due in cases of service lapse or breach. These monetary penalties are a powerful way to ensure continuous service.
• Service credits: Handled another way, penalties may instead be service credits. This is a reduction in owed fees as a result of a service lapse. For instance, a 1% reduction in total uptime outside the contract margin of error could result in a 1% discount on service.
• Extension: Another remedy for downtime avoids penalty or revenue loss for the supplier. Instead, it remedies a lapse by extended service. Depending on the type of service and supplier relationship, this may be preferable to monetary remedy.

Service-level agreement best practices

While you want to believe that service will go smoothly, you may find the need to enforce your SLA at some point during the contract.

Whatever metrics you agree to, it's on you to ensure rights and responsibilities are honored. This means monitoring your services to ensure you're getting what you paid for. While the contract will state the party responsible for reporting, it's always a good idea to keep an eye on things yourself.

Monitoring is a matter of good internal customer service. The faster you're alerted to a problem, the more responsive you can be to your own users. It allows you to address potential issues for your own service agreements and work with your supplier to restore service.

In the event your supplier misses a contractual commitment, you can then communicate the specifics of the service failure. From there, you can establish remedies forthcoming and confirm credits or penalties due.

With a strong SLA, you can save time, build better relationships, and realize potential savings.

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