What is an SLA and How is it Different from a KPI?

By Indeed Editorial Team

Updated December 4, 2022

Published November 30, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A service-level agreement (SLA) establishes the performance standards of a service provider. It specifies the service you expect from a vendor, including the metrics used to assess the service. Learning what an SLA is can help you ensure that your work processes are more efficient and effective. In this article, we define what an SLA is, discuss why they're important, highlight who provides them, discuss what constitutes them, highlight how to select the metrics of an SLA, discover the differences between an SLA and a KPI, and discuss tips for writing an SLA.

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What is an SLA?

If you're an independent contractor or project manager, it may be beneficial to understand the answer to "What is an SLA?" An SLA is a written agreement that defines the service that a vendor can provide to a client quantitatively and qualitatively. It's an essential element of any contract with a technology vendor. An SLA is important in guaranteeing the performance of operations that rely on the vendor's underlying services. Vendors may supply various service levels at varying price points, and customers frequently achieve an ideal balance between service quality and cost.

Related: What Are Service-Level Agreements? (With an Example)

Why are SLAs important?

The following are some of the reasons SLAs are important:

Allowing for negotiation

SLAs can offer both parties the option of negotiating the terms of their agreement. This may assist service providers in establishing limits and receiving compensation that is proportionate to their effort. SLAs may also enable the service recipient to negotiate certain features of the service that meet their demands.

Establishing specific expectations

SLAs can help ensure that both parties in a service transaction have a clear understanding of the level of service to be given and the grading systems used to monitor performance. This can help avoid any miscommunications or disappointments caused by misaligned expectations. By establishing clear expectations through an SLA, the service provider may also protect itself against possible litigation.

Providing a recourse

There is usually a chance that clients may find the service they receive not satisfactory. SLAs usually provide recourse in the event of customer dissatisfaction. These agreements can help guarantee the service provider compensates the individual receiving the service fairly and can help both parties maintain a pleasant relationship.

Who provides an SLA?

The service provider is usually the one who creates and offers an SLA to their clients. Service providers may have pre-defined SLAs for the many types of services they provide, or they may create unique SLAs for each customer. While clients may examine SLAs and negotiate their conditions with legal experts to ensure the satisfaction of both parties, they seldom write these agreements.

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What constitutes an SLA?

The basic purpose of an SLA is to define the mutual objectives that each party wants to accomplish via their cooperation. An SLA consists of numerous components that frequently vary according to the parties involved and the type of service being delivered. Typical components of an SLA include the following:

  • Document overview: The document overview frequently contains a list of the SLA's future material. It may also briefly explain the strategic objectives and provide a list of the parties involved, the dates the services may be available, and any other pertinent information that the agreement can highlight in greater detail later.

  • Strategic objectives: The strategic goals section of an SLA frequently defines the parties' objectives and the agreement's purpose.

  • Shareholders: SLAs frequently include a list of all parties and persons who are part of that agreement, along with their contact information.

  • Regular review and required change: This section discusses how services go through reviews on a regular basis and which terms of service are subject to change.

  • Service agreement: This is frequently the longest and most extensive section of an SLA. It outlines all customer expectations, service provider criteria, service scope, and service assumptions.

  • Service management: This section discusses the potential constraints on service availability and delivery.

How can you select metrics for an SLA?

The following steps can help you select metrics for an SLA:

1. Consider the goals of both parties

Prior to drafting the conditions of an SLA, it's critical to consider the objectives of both parties. Consider the value you intend to deliver to your consumer and the payment you want to receive for your work as a service provider. This can include the number of hours you anticipate contributing, the compensation you want for those hours, and the hours during which you intend to be accessible.

Related: How to Write a SMART Goal (With Importance and Examples)

2. Establish meaningful and attainable metrics

It's vital that the services agreed upon are accessible and within your capabilities. Try to consider incorporating actionable and realistic metrics to increase your chances of achieving them. It may be beneficial to reflect on past services rendered and the time and resources required to execute different jobs. Consider using wording in the service agreement section of your paper that clearly describes each actionable step of service. This may assist you in being organized and effectively prioritizing your activities, while also providing clear customer expectations.

3. Define the system of measurement

To hold yourself accountable for meeting the requirements of your SLA, it's critical to establish clear metrics for success. You can accomplish this by developing a timetable outlining your goals for each stage of service or by defining goals that your customer can evaluate at various stages of the process. Not only may this assist you in being organized, but it may also assist your client in understanding how to follow your progress over the agreement's duration.

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4. Include fair service penalties

In the event that you're unable to keep to the terms of the agreement, it's essential that your clients feel compensated. Consider providing service fines that add value to your customers' experience and help you keep a good relationship with them without compromising your business's operations. While drafting service penalties, it's also critical to express your own interests.

Consider incorporating conditions outlining processes in the event your customer fails to meet up to their part of the agreement. For instance, if they fail to make the payment following the conclusion of a project phase, you may halt the project's continuance until they make payment.

5. Seek legal advice

It's critical that a legal expert evaluates all legally binding contracts. Consider using the services of an attorney or consulting company to examine your SLA and verify that it accurately reflects both parties' needs. This may also help ensure that both parties are legally accountable for any breach of the agreements and safeguard you against potential lawsuits.

Difference between an SLA and a KPI

SLAs and KPIs (key performance indicators) are different in that KPIs measure how effectively individuals, business units, projects, and organizations perform in relation to their strategic objectives. It's a tool that informs the leaders of an organization about how close or far they're from accomplishing an objective. SLAs are more concerned with establishing performance standards for a service provider.

Read more: How to Define and Measure a Key Performance Indicator

Tips for writing an SLA

Here are some tips for writing your own SLA:

Assess your present level of service

Begin by defining the services that are currently being received and the level at which they're being given. When you begin using an SLA, use your evaluation of your present service circumstances to drive the process of creating objectives and criteria for various services and service kinds. Consider implementing this assessment for each vendor that may require an SLA.

Define your goals

Try to conduct a review of your present service level with existing contractors and determine the degree of service you want to get from new ones. If the degree of service you require surpasses what is now available, determine what improvements you can make to bring those services up to your standards. As part of your final SLA document, be careful to specify which contractual party is providing the service.

Select a contract structure

Consider a framework for your SLA that may assist you in achieving the identified objectives. Certain businesses may utilize a common SLA template for all vendor agreements. If that is the case, explore how you may adapt that template to fit your needs. Other businesses may customize their SLA paperwork to each business or individual with whom they do business. Ensure that the structure can best fit your needs in these cases. If necessary, consult a professional regarding any legal terminology or ramifications contained in your SLA.

Determine the service level

Attempt to describe the degree of service required to accomplish the objectives. This may contain the date and time the service is to be done, and the scope, scale, and aim of the service. Some companies give a summary of possible implications if service gets delayed or discontinued.

State the terms of agreement and performance expectations

Clarify the duties of each party under the SLA. This may contain the service provider's responsibilities, the duration of the agreement, and any significant exceptions to these conditions. The conditions of your SLA may also include the contractual party's expectations. After defining the range of services, the level at which are performed, and any other pertinent particular requirements of your agreement, you can then consider introducing key performance indicators.

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