Service Level Agreement

Learn all there is to know about service level agreements, how they help manage customer expectations, and why they are relevant for your business.

Naveen Mahadevan
May 12, 2022
6 min read

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Table of Contents

What is a service level agreement?

A service level is a measurement of performance that determines the kind of service a business will receive from a service provider.

Stemming from that, a service level agreement (SLA) is a contract between the two parties that lists out the deliverables the vendor has agreed to provide to the client within a set timeline.

This agreement usually exists between two businesses, though it can also exist within an organization between two different functions or departments.

Call center SLA

A call center SLA, on the other hand, is a set of guidelines that specify the customer service standards that support agents are required to meet during customer interactions.

Call centers determine their own SLAs. The rate at which those objectives are met is referred to as the call center service level. For example, standard objectives may include 80% of calls answered prior to three rings, 90% of chats accepted within 10 seconds, or 100% of emails responded to within 24 hours.

The service level metrics in a call center are usually made up of the percentage of calls answered, average time to respond, average handle time (AHT), and mean time to resolution (MTTR), among other key performance indicators (KPIs). Meeting the service level agreement — usually by staying on top of customer complaints — can help a call center improve customer experience and customer satisfaction, and enhance customer lifetime value (CLV).

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Types of SLAs

SLAs align two entities by setting forth clear expectations and pre-empting issues. There are three types of SLAs:

  • Customer Service Level Agreement: this is an agreement between a vendor and customer to deliver a certain level of service to that customer — this is the most common type of SLA.

  • Internal Service Level Agreement: this is an agreement between two departments or functions within an organization.

  • Multilevel Service Level Agreement: this type of SLA can accommodate both an organization’s customers and its various internal teams (i.e., it outlines what is expected of each entity when there’s more than one service provider and end user).

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What does an SLA consist of?

All SLAs contain the same key components, including:

  • Agreement overview: states the basics of the SLA, including the parties or stakeholders involved, the agreed-upon start date, and a general description of the services rendered

  • Description of services: as the name suggests, this is a detailed description of every service offered, service delivery, dependencies (if any), processes involved, and technology or applications used under all possible circumstances, along with the turnaround times

  • Exclusions: services that aren’t covered but should be mentioned to avoid any confusion later

  • Service performance: performance measurement metrics and performance levels that should be made clear at the outset after both parties — the client and service provider — have reached a consensus regarding the measurement of the services offered

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  • Redressal: contains details about compensation should the provider not fulfill the terms of the contract

  • Stakeholders: identifies the parties involved in the contract, along with their respective responsibilities

  • Security: a list of all security measures that will be implemented by the service provider, which typically includes a protocol on data privacy and nondisclosure agreements (NDA)

  • Risk mitigation and disaster recovery: clearly outlined risk management processes and disaster recovery plans

  • Service tracking and reporting: details regarding the reporting structure, tracking intervals, and stakeholders involved in the SLA

  • Periodic review and change processes: all established KPIs — should be reviewed regularly, with appropriate changes made where necessary

  • Termination process: details the extenuating circumstances under which the agreement can be terminated by either party (the notice period from either side is also established)

  • Signatures: all stakeholders who must sign the SLA to ratify it

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SLA performance metrics

Metrics are included in SLAs to measure the service provider’s performance.

Since selecting performance metrics that are fair to both parties can be challenging, it’s important that the service provider has the final say on which metrics to measure. If a service provider is not able to control whether it performs as specified, it is unfair to hold them accountable — and collecting data for each metric should be automatic. The SLA should also specify a clear, reasonable baseline for the chosen metrics, which should be refined as necessary — especially when more data becomes available.

Metrics help in managing expectations regarding the service provider’s performance and quality of service in several ways. Here are some key performance metrics to track:

  • Availability and uptime percentage: refers to the amount of time services are running and accessible to the customer; uptime is generally tracked and reported per calendar month or billing cycle

  • Specific performance benchmarks: used to gauge actual performance periodically

  • Service provider response time: the time taken by the service provider to respond to a customer’s issue or request (a larger service provider may even provide a service desk to address customer inquiries)

  • Resolution time: the time taken to resolve an issue once logged by the service provider

  • Abandonment rate: the percentage of queued calls abandoned by customers

  • Error rate: the percentage of errors found in a service

  • First-call resolution (FCR): also referred to as first contact resolution, FCR is the percentage of customer issues resolved during the first call itself

  • Mean time to recovery (MTTR): the time it takes for a service to recover after downtime

  • Security: the number of undisclosed vulnerabilities (for example, if an incident occurs, service providers should demonstrate that they have taken ample measures to prevent such issues from occurring in the future)

  • Time service factor: the percentage of queued calls that customer service agents answer within a given time frame

  • Turnaround time: the time taken by a service provider to resolve a specific issue once it has been received

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Considerations for SLA metrics

When defining SLA metrics for your organization, remember that the goal of performance measurement is to motivate the appropriate behavior from both stakeholders — the service provider and the customer. The metrics should only reflect factors that are within the service provider’s control and are easy to gather. But both parties should refrain from metrics or measurements that accrue and store large amounts of data. That being said, including too few metrics can also pose a problem, as missing even one could make it look as if the terms of the contract have been breached.

Your top priority should be to establish a proper baseline — otherwise, the metrics won’t be useful. This baseline will likely need to be revisited from time to time (using the processes specified in the periodic review and change processes section of the SLA).

Once established, you can use the metrics as a foundation for deciding what service level objectives to include and how to best meet expectations. Keep the following in mind when choosing what performance metrics to include in your SLA:

What happens if agreed-upon service levels aren’t met?

SLAs include certain penalties and escalation procedures in the event that a service provider doesn’t meet the agreed-upon service levels. The resulting remedies could be straightforward fee reductions or service credits against the fee incurred by the customer, or they could be more severe, such as termination of the contract for repeated failures. Customers can enforce these service credits when service providers don’t meet the mutually agreed-upon performance standards.

In most cases, the customer and service provider agree to put a certain percentage of the monthly fee at risk — the service credits are taken from those at-risk fees when the vendor fails to deliver the SLA. The SLA should detail how service credits will be calculated.

For example, service credits could be provided based on the amount of downtime that exceeds the terms of the SLA. The SLA will also include a section detailing exclusions — penalties for failing to meet these don’t apply. This section aims to excuse the service provider from events beyond its reasonable control, such as earthquakes and other natural disasters.

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Penalties exist to ensure the SLA terms are adhered to. They vary from contract to contract but generally can be broken by the following:

  • Service availability: includes factors such as network uptime, data center resources, and database availability (penalties should be added as deterrents against service downtime, which could negatively affect the business)

  • Service quality: involves performance guarantee, the number of errors allowed in a product or service, process gaps, and other issues that pertain to quality

In addition to service credits, there could be:

  • Financial penalties: these require the vendor to reimburse the customer for the damages that arise due to an SLA breach

  • License extension or support: requires the vendor to extend the license term or offer the customer additional support — including development and maintenance — free of cost

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These penalties must be laid out clearly in the SLA, or they won’t be enforceable. Though some customers may not think the service credit or license extension penalties are adequate compensation, since they may not wish to continue receiving services from a vendor who’s unable to meet their desired quality levels. So consider stipulating a combination of penalties, as well as including an incentive such as a monetary bonus for above-satisfactory work.

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How often should contact center managers revise an SLA?

An SLA isn’t a static document — it should be updated and reviewed regularly by all parties involved to ensure that it still meets the requirements of any concerned stakeholders.

Most organizations revise their SLAs either annually or bi-annually. A growing company, however, should review and revise its SLAs on a more frequent basis. Knowing when to make changes in an SLA is key to managing the client-service provider relationship.

An SLA should be revised if:

  • the customer’s business requirements have changed (e.g., expanded operations or personnel)

  • there has been a change in the workload

  • measurement tools, processes, and metrics have either been altered or improved

  • the service provider stops an existing service or adds a new service into the mix

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