What is an SLA: Definition, Examples, and Tips for Small Businesses (2023)

Every industry has its jargon. But the term “SLA” is particularly hard to define because of its wide scope.

Internet providers use SLAs to set standards for up-time. Merchant suppliers use SLAs to determine production costs. And, of course, customer service teams use them to set expectations for service performance, response time, and satisfaction.

I’ve worked at lean startups most of my career. I knew SLA as a term used by outsourced IT departments. And for the most part, that’s still it’s typical use case.

But, as more small businesses and e-commerce stores pop up—and more of them center their mission on providing great customer service—I’m seeing people make an effort to learn the jargon and understand terms like SLA to legitimize their services.

We’ll take a more practical approach to defining the term and help growing businesses understand how they can use SLA best practices to improve their support—regardless of the size of your team.

What is an SLA?

An SLA (service-level agreement) documents the agreed-upon level of service between a vendor and a client. Numerical metrics are often assigned to determine success or failure of the agreement, along with clear repercussions for failing to meet the service level standards. It’s most commonly used by technology and customer service providers.

For the customer service industry in particular, SLAs include metrics like response time, customer satisfaction, and replies to resolve. SLAs can be either internal or public-facing. They help set a standard for measuring customer happiness and team productivity.

(Video) What is a Service Level Agreement?

Types of service-level agreements

The most common types of SLAs include customer-based, service-based, and multi-level agreements. Each sets up a contract between a specific type of industry or business relationship.

Using some realistic examples, let’s explore the basics of each type.

1. Customer-based SLA

With customer-based SLAs, the agreement revolves around a single customer.

For example, an e-commerce store signs an SLA with a manufacturer to create their t-shirts. The SLA stipulates the services provided by the manufacturer to the individual e-commerce store. The agreement includes things like the quality of materials, the number of shirts to be produced within a given time, and the delivery dates.

2. Service-based SLA

A service-based SLA covers the level of service for all customers—not just one.

A SaaS business, for instance, may use a service-based SLA to ensure 99.9% uptime for its product and offer service credits for failure to perform. This guarantee is not just for one individual customer, but a general performance-level promise for all users of their software.

3. Multi-level SLA

Multi-level service agreements allow you to adjust or combine different types of SLAs to meet your customers’ needs.

The simplest example of this type exists in many freemium software products. You’ll often see guaranteed service levels (like a dedicated customer service line or an assigned account manager) reserved for higher price points or exclusive to certain subscription plans.

(Video) Defining your Service Level Agreement (SLA)

What is an SLA: Definition, Examples, and Tips for Small Businesses (1)

Setting SLA metrics and KPIs

The real meat of service-level agreements lies in their metrics. This holds the service provider and their clients accountable to a precise measurement. The metrics are objective and often able to be calculated automatically, ensuring fairness for both parties.

For customer service providers, the most common metrics found in SLAs are:

  • Average Resolution Time
  • First Response Time
  • Replies to Resolution
  • CSAT (customer satisfaction score)

(We’ve broken down all of these customer service metrics at length in previous posts if you want to learn more!)

These metrics have been perfected over the years to cover the most important aspects of customer service. When a company excels at each of these metrics (and continues to improve them), they can expect higher profit, longer customer retention, and decreased churn.

While SLAs and KPIs (key performance indicators) are different terms, it’s not uncommon for the metrics associated with them to be the same.

Customer support teams set KPIs to decrease reply time, resolve tickets quicker, and get higher satisfaction ratings. The difference between SLAs and KPIs simply lies in the intention.

SLAs must be met in order to fulfil a contractual agreement, with clear repercussions if a service provider fails (often in the form of discounts or refunds). Whereas KPIs are used for goal-setting and motivation, not usually associated with demerits for failure to meet.

Why is an SLA important for customer service?

It’s easy to understand why SLAs are important for huge organizations. They objectively track the success of an external service like an outsourced IT department and hold them accountable to standards set forth by the company.

(Video) What is SLA 💥| Service Level in Call Center | Calculations with Examples

When customer service is out of sight and out of mind—SLAs are extremely important.

Managing customer support at a small company must be a different case, right?

You’re busy fulfilling orders, getting new clients, or overseeing production. You might not even have a dedicated support team yet. Or if you do, they’re very small. And it seems silly to track these big scary metrics with jargon like SLA and KPIs.

But understanding the principles behind service management (even if you don’t write up an actual contract) proves just as important for smaller companies for a few reasons.

  • SLAs establish clear-cut goals for your customer service. Just as you track revenue and costs for your product, use SLAs to verify your support needs and keep up with demand.
  • Clients respect the idea of SLAs—even without a contract. Use real metrics to set customer expectations and answer potential client questions around response time or satisfaction to close more deals.
  • Tracking SLAs will tell you when it’s time to grow. If you’re a founder handling support (or a small team), constantly missing the mark on your desired metrics signals a need for hiring or outsourcing.

Moreover, customer service SLAs correlate with every other important part of your business. If reply time is low, revenue often goes up. If CSAT is high, you’ll likely see more repeat purchases.

SLA best practices and tips for growing businesses

Regardless of the size or type of your business, the best practices behind service-level agreements can help you achieve customer service success.

Here are some tips to help small businesses, in particular, use SLAs in the most impactful way.

1. Make your SLAs flexible

Small businesses experience more volatility than established brands. You might see a huge leap in orders one month or an unforeseen issue with a manufacturer could throw off all your estimates.

(Video) Webinar: How to report Answer and Abandonment rates as calls traverse through your Call Handler

Your service delivery can change in an instant, making it impossible to hit your original goals. Take a moment to step back and re-define the services expected in these moments—but don’t get rid of your KPIs completely!

Realign your metrics and set more realistic goals during a chaotic time so you can effectively plan for future incidents.

2. Set aspirational (but attainable) metrics

You always want to be improving your SLAs to keep customers happy. Focus on incremental and traceable improvements.

I wouldn’t recommend setting standards too high for small teams. I’ve worked on teams where we just stopped looking at metrics because the goals seemed so out of touch with reality.

Define your baseline metrics. Then set KPIs a bit higher. If you consistently hit your goals for a few months, bump it up a bit more. Slow and steady.

3. Use internal SLAs for better team communication

Internal SLAs enable your company to communicate better interdepartmentally. This is a great option for both large and small teams to establish clear expectations among team members.

Give your customer success team realistic expectations for getting materials from your marketing team or for the amount of time needed to fix bugs from your developers.

Depending on the culture of your company, you can use a formal service-level agreement (SLA) template or simply draft a list of expectations and ask the parties involved to sign off.

(Video) How SLA is different from KPI ?

We put together a template to outline everyone’s role and expectations during an outage at our company. Worth a look if you’re considering something similar.

What is an SLA: Definition, Examples, and Tips for Small Businesses (2)

Note that you can have “SLAs” without actually having a service-level agreement contract. The term covers general metrics and customer service KPIs.

When clients ask about SLAs, they’re asking about your metrics and customer service priorities. You don’t (and shouldn’t) need a contractual SLA to provide an answer.


What is SLA and example? ›

In a customer-based SLA, the customer and service provider come to a negotiated agreement on the services that will be provided. For example, a company may negotiate with the IT service provider that manages its accounts payable system to define their specific relationship and expectations in detail.

What are the three 3 types of SLAs? ›

ITIL focuses on three types of options for structuring SLA: Service-based, Customer-based, and Multi-level or Hierarchical SLAs. Many different factors will need to be considered when deciding which SLA structure is most appropriate for an organization to use.

What is an SLA best practices for service level agreements? ›

What's in an SLA? The SLA should include not only a description of the services to be provided and their expected service levels, but also metrics by which the services are measured, the duties and responsibilities of each party, the remedies or penalties for breach, and a protocol for adding and removing metrics.

What is an example of a service based SLA? ›

For example, in the relationship between an on-demand video service and a subscriber, a single contract covers the services available, duration of the services provided, and promised uptime. The contract will change for each customer based on the plan they choose. Here the SLA is based on the individual customer.

What is an example of a service level agreement for customer service? ›

For example, a company may tell customers to expect a support ticket response within 6 hours, but their SLA requires a 4 hour response. This gives them wiggle room and makes them look better to customers if they are able to respond faster - classic "under promise and over deliver".

What are the main elements of a good SLA? ›

The main elements of a good SLA.
  • Overall objectives. The SLA should set out the overall objectives for the services to be provided. ...
  • Description of the Services. The SLA should include a detailed description of the services. ...
  • Performance Standards. ...
  • Compensation/Service Credits. ...
  • Critical Failure.

How can I improve my SLA performance? ›

Be Specific

While drafting an SLA on uptime as an IT service provider, you should include a specific percentage of uptime you are willing to provide. Use clear terminology to bring clarity reducing conflict among both parties.

What are SLAs and KPI's? ›

SLAs are documents that outline the wider service agreements between a service provider and its customers, while KPIs are generally used to measure the performance of companies against their strategic goals. However, KPIs can form part of a SLA to measure the delivery of the defined service standards.

How do I create a SLA schedule? ›

By default, if the SLA definition does not use a schedule, business duration fields are left blank. If you want this to be always populated, you can force this by using a 24 X 7 schedule. Navigate to System Scheduler > Schedules > Schedules. Create a new schedule.

What are SLA expectations? ›

A service-level agreement (SLA) sets the expectations between the service provider and the customer and describes the products or services to be delivered, the single point of contact for end-user problems, and the metrics by which the effectiveness of the process is monitored and approved.

What are the steps in SLA? ›

In SLA ServiceNow, six stages are explained as follows:
  • In Progress stage: It says that the SLA computation is in progress, which means that if the SLA is applied to an incident, it is not yet resolved or closed.
  • Achieved stage: ...
  • Breached stage: ...
  • Canceled stage: ...
  • Pause stage: ...
  • Completed:

When and how would you use a service level agreement? ›

An SLA allows you to hold your service provider accountable and details exactly the type of service you can expect. If agreed upon needs aren't met, you can mitigate some of the impacts by making your provider compensate for the losses. Service providers also prefer SLAs as it goes a long way in retaining customers.

What are the 2 types of SLA in service now? ›

Three types are :
  • SLA - service level agreement.
  • OLA - operational-level agreement.
  • Underpinning Contract.
Aug 27, 2018

What are examples of service level management? ›

Service-level management examples include defining services and expected delivery times, monitoring service promises and measuring customer satisfaction.

What are SLA metrics examples? ›

SLA metrics are criteria negotiated between a customer and their service provider that define a quantitative target that has to be achieved for the service provided. For example, the rate of incidents resolved on time on a weekly basis is 90% or more.

What is a smart goal for SLA? ›

SLAs must represent SMART goals—specific, measurable, achievable, relevant, and timely. Each individual SLA must possess the following characteristics: Specific. An SLA must be specific and detailed enough to define expectations for service delivery.

What are the goals and objectives of SLA? ›

The purpose of Service Level Agreement Management is to manage Service Level Agreements in a way that customer requirements are reflected and contracts are coordinated and harmonized. Basic requirement is to balance the value and quality for the customer with the costs of service.

What are the challenges in SLA? ›

Here are seven (7) typical issues to consider as a customer reviewing any proposed SLA:
  • Uptime (Availability) & Downtime. ...
  • Support Hours. ...
  • Response and Repair Times. ...
  • Severity Levels. ...
  • SLA Credits. ...
  • Notice. ...
  • Termination Right.
Jan 29, 2018

How do you negotiate a SLAs? ›

How to Negotiate a Service Level Agreement
  1. Why do I need to document my SLAs? ...
  2. Get Service Level Requirements from your Client. ...
  3. Make sure IT can deliver to the Service Level Target. ...
  4. Make SLAs measurable and easy to understand. ...
  5. Continual Service Improvement (CSI) through the Service Review.
Jan 1, 2018

What is the formula for SLA? ›

The service level formula is simply the number of calls answered within the service level threshold divided by the number of calls offered, multiplied by 100. This then gives you a percentage service level. It's really as easy as this.

Who writes an SLA? ›

An SLA is a contract between a service provider and a service user that defines what service is provided, as well as expectations around issues and downtime. As an early-stage founder, writing an SLA is one of those tasks that's uber-important but also uber-outside your forte.

Does an SLA need to be signed? ›

If you're a service provider, you need to create and sign an SLA with your customer before rendering services. Service-level contracts set clear and measurable guidelines for both you and the customer. If for some reason service levels or quality don't meet these expectations, the SLA provides recourse.

What is SLA scheduling? ›

An SLA in LSF is a "just-in-time" scheduling policy that defines an agreement between LSF administrators and LSF users. The SLA scheduling policy defines how many jobs should be run from each SLA to meet the configured goals.

How do I create a SLA in service now? ›

  1. In ServiceNow navigate to Service Level Management/SLA Definitions.
  2. Create a new SLA definition by clicking New.
  3. Name: Specify a name for the SLA.
  4. Type: Select the type of agreement being defined: SLA, OLA, or Underpinning contract. ...
  5. Table: Select the table whose records the SLA tracks.

What are the five stages of SLA? ›

The Five Stages of Second Language Acquisition

Students learning a second language move through five predictable stages: Preproduction, Early Production, Speech Emergence, Intermediate Fluency, and Advanced Fluency (Krashen & Terrell, 1983).

What is SLA for employees? ›

An SLA is a contract between two people. It explains the service that will be provided, lists the Service Level Targets (what the service will be measured against), and lays out the responsibilities of both the Service Provider (HR) and the Customer (Employees and Managers).

Which is a key requirement for a successful service level agreement? ›

Service Level Agreements (SLAs)

Some of the key requirements for successful SLAs include: They must be related to a defined 'service' in the service catalogue. Individual metrics without a specified service context are unhelpful. They should relate to defined outcomes and not simply operational metrics.

What are other five 5 examples of metrics KPI's? ›

In general, five of the most commonly used KPIs include:
  • Revenue growth.
  • Revenue per client.
  • Profit margin.
  • Client retention rate.
  • Customer satisfaction.

How do you define service level? ›

Service level describes, usually in measurable terms, the services a network service provider furnishes a customer within a given time period. When used as a call center metric, service level measures the percentage of incoming calls that an agent answers live in an established amount of time.

What are the 5 stages of service learning with examples? ›

The service-learning process takes students through the stages of Investigation, Preparation, Action, Reflection, Demonstration and Evaluation.

What is L1 and L2 in SLA? ›

A person's native language (L1 or NL) is the language s/he learned first, as a child growing up. A person's second language (L2) is a language learned after L1 (includes third, fifth, …) usually non-natively. Second Language Acquisition.

What are the 4 aspects of service level agreement? ›

The main elements of a good SLA.
  • Overall objectives. The SLA should set out the overall objectives for the services to be provided. ...
  • Description of the Services. The SLA should include a detailed description of the services. ...
  • Performance Standards. ...
  • Compensation/Service Credits. ...
  • Critical Failure.

What are benefits of SLA? ›

Your SLA is the key to making sure you and your service provider are on the same page in terms of standards and service. By creating a service level agreement, you and your provider can work together to better manage expectations, workloads, and more so establishing clear and measurable guidelines is important.

Why SLA is important for business? ›

Service-level agreements (SLAs) are important because they establish clear commitments between a service provider and a customer. Service-level agreements are common in the telecommunications industry and provide corporations with a guarantee that certain standards will be upheld.


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