Service Level Agreement (SLA) - definition & overview

A Service Level Agreement (SLA) is a legal obligation or set of obligations made between a service provider and a client or customer, which guarantees certain quality assurances for availability, responsibility and other key metrics. If these measures are not met within the bounds of the agreement, there are consequences against the service provider in the form of a financial penalty, such as a refund, discount, or credit.

Both clients and service providers want ways to create a shared understanding of what the client-to-service-provider agreement is concerning reliability, quality assurance, and minimal guarantees.

Customers want dynamic and reliable products and applications that offer features they can rely on, which also deliver an exceptional digital customer experience. Development teams and businesses want to meet those needs while maintaining their objectives and growth goals.

This is where the contract of an SLA shows its value, utility, and practical purpose.

Different types of SLAs define various levels of agreements, including customer-based SLAs, service-based SLAs, and corporate-level SLAs. SLAs are often defined by various Service Level Objectives (SLOs) which are a smaller subsection within the SLA umbrella. SLOs are the internal objectives that help ensure SLAs are being met, and they are the various metrics that companies will utilize to ensure they’re maintaining quality and reliability on their end of the SLA bargain.

While it’s up to the service provider to maintain the agreement within the SLA, the various aspects of an SLA can range anywhere from customer-service level objectives, like response times, to product-level quality assurance.

Below we break down some key components of an SLA. It’s important to note that not all companies or businesses will utilize each of these aspects. Depending on the type of company, e.g., product-based, tech-based, service-based, certain aspects of quality assurance and reliability wouldn’t be included within the bounds of an SLA.

• Services provided
  SLAs include language used to define and establish, under state and federal law, what services are guaranteed to a client and customers and the conditions in which those services are guaranteed. In the case of a product-based service, a provider might guarantee, under warranty, a period in which they will repair a damaged or broken product.

• Performance level and reliability
  SLAs include terms that establish reliable service agreements that indicate the level of responsiveness and performance within a product, customer request, or service. If there are persistent bandwidth issues with network internet providers, for example, that level of inconsistency could breach the performance level and reliability agreements within an SLA.

• Reporting and service level
  Companies need ways to supervise and monitor the quality and performance of their service levels. The reporting process requires businesses to gather different data and statistics. Those numbers often represented through SLOs, will help them understand how well the quality of their services is being maintained.

• Service issues
  The service issue component of an SLA will define the steps and order in which an issue must be reported. This includes the timeframe in which the issue must be resolved and other numerically definable metrics, like time to response, associated with the issue.

• Service-provider consequences
  When providers can’t meet their commitments, the SLA will state the appropriate penalty and consequences. These might include a client or customer’s right to terminate a contract, ask for payment through a refund or discount, or to receive another product/service.

Businesses don’t always use SLAs today, but when they do, they use them as a kind of road map that needs to be maintained through SLOs and SLIs, which we will discuss below.

SLAs, SLOs, and SLIs all work together to uphold the contract and agreement between a service provider and a client. Below we’ll look at each term and see how it functions in the client–service provider relationship.

• SLA: As we mentioned above, a service level agreement is an obligation or set of obligations made between a service provider and a client, which guarantees certain quality assurances for availability, responsibility, and other key metrics. Different types of SLAs define various levels of agreements, including customer-based SLAs, service-based SLAs, and corporate-level SLAs. SLOs, the next subsection of the SLA umbrella, often define SLAs.

• SLO:A service level objective is an important aspect of how we measure and maintain the obligations defined in an SLA. SLOs are essentially the percentage benchmark we place on specific metrics that demonstrate how effectively the agreements within an SLA are being upheld. SLOs are expressed through specific, concrete numerical percentiles that represent and measure the efficacy of a specific level of service. Those numbers are representative of the next sub-category, SLIs.

• SLI: A service level indicator is a specific metric that helps companies measure some aspect of the level of services to their customers. SLIs can help companies identify ongoing network issues and lead to more efficient recoveries. SLIs are typically measured as percentages, with 0% being terrible performance to 100% being perfect performance. SLIs are the foundation of SLOs, which aim to represent the objectives that an organization is aiming to uphold within its SLA. SLOs will determine which SLIs are underscored and which SLIs will be used to demonstrate quality assurance.

A lot of SLA metrics are defined through SLOs and Service Level Indicators (SLIs), and below we’ll look at some of the most common metrics used to assess quality and reliability within an SLA.

• Request Latency
  This is perhaps the most valued or widely measured SLI today. Request latencies look at how long it takes for companies to return a response to a request.

• Error Rate
  Error rates are another key SLI, and they measure, as you may have guessed, the number or level of errors throughout the customer experience. A low error rate, let’s say at 5%, would be a good thing and represent an SLO at 95%.

• System Throughput
  System throughput is measured through requests per second or the sum of all data delivered to their various terminals within a network.

• Availability
  Availability is another important SLI that measures the fraction of time that a service is available. Availability is connected to and often determined in terms of the next SLI: yield.

• Yield
  Yield is the rate, usually as a fraction, of successful and well-formed service requests. A high yield is a good indication of your correctness and accuracy.

• Durability
  Durability is the percentage that companies will be able to retain data over time, which is essential to logging and data storage.

These SLIs help define objectives, which in turn make sure that the SLA is being upheld. If your SLOs aren’t showing strong indicator metrics, then you are at risk of breaching your end of the SLA contract.

SLAs are often broadly used across many different contexts, which makes their application difficult to standardize. However, if organizations are committed to creating a set of SLA best practices, they can narrow their focus and create a transparent, clear, and practical set of metrics to run their services through.

Below are some best practices to help you optimize your SLA strategy.

• Create different SLAs for different services you provide.
  This will allow you to simplify your SLO and SLA strategy and review your metrics in a much more manageable manner. Additionally, it may not make sense to have one SLA for products and services that have different regulatory conditions or reliability measures.

• Companies should know and review their terms at all times.
  Yes, legal agreements aren’t fun, but it’s incumbent on your DevOps team and leaders to understand and uphold their end of the agreement.

• Understand your customers’ needs and align your SLA to those needs.
  SLAs help you have some control over the potential liabilities associated with your products and services, but they also function to provide a level of quality assurance to your customers. It would be somewhat of a waste to guarantee reliability and quality toward a set of conditions that won’t improve the customer or user experience.

• Set practical goals.
  Setting the right conditions within your SLA is somewhat of a balancing act. Yes, you want your customers to feel like they can be secure in the set of guarantees you make to them, but you don’t want to set unrealistic expectations for your service and product management teams. Certain metrics, despite what customers ask for, simply can’t be achieved, and working closely with your service and product development leaders will quickly give you a good idea of what is and isn’t achievable.

• Review, assess, and modify your metrics continuously.
  Whether you do this on a quarterly, semester, or annual basis, you need to be evaluating your metrics to see how well they're being upheld and whether or not they’re leading to the level of satisfaction you want from your customers. Over time, you could easily fall out of the terms of the agreement if you don’t continuously keep tabs on your metrics.

Businesses are focused on achieving their goals and maintaining their SLAs, which is why they value robust observability platforms, like Sumo Logic, to help them measure their objectives and ensure they’re on track to meeting their KPIs, deadlines, and long-term strategies.

Try Sumo Logic’s free trial today to see how we can help you reach your goals and maintain quality assurance today.

What are the consequences of an SLA violation, and how can it be remedied?

An SLA violation can result in service credits, penalties or financial reimbursements to the affected party. To remedy an SLA violation, the service provider may need to offer additional services, extend the agreement term, or compensate the customer. 

What are the key components that every service level agreement should include for maximum effectiveness?

Key components of an effective SLA:

• Clearly define the services being provided and the responsibilities of both parties.

• Outline specific metrics or key performance indicators (KPI), such as response time, uptime, and resolution time.

• Set clear, measurable objectives for each metric to ensure accountability.

• Detail how performance will be measured, reported, and reviewed.

• Include steps for escalating issues that are not resolved within agreed-upon timeframes.

• Clearly define the roles and responsibilities of the service provider and the customer.

• Ensure the SLA complies with relevant laws and regulations and establishes a governance structure.

• Address how changes to the SLA will be handled and communicated.

• Include conditions under which either party can terminate the agreement.

• Specify any service credits or penalties for not meeting the agreed-upon service levels.

Are there any emerging trends or technologies impacting the field of service level agreements?

One notable trend is the adoption of generative AI to automate SLA management processes, improving accuracy and reducing manual effort. Additionally, integrating performance metrics and key performance indicators (KPIs) in SLAs is gaining prominence, enabling better measurement of service quality and adherence to customer expectations.

Cloud service has also revolutionized SLAs by offering increased service availability and scalability. Moreover, the focus on customer experience and clear expectations influences the design of more effective SLAs that align with customer needs. Overall, technological advancements and a shift towards customer-centric practices are shaping the future of service-level agreements.