HomeIndustry KnowledgeService Level Agreement explained! Understanding what SLA means.

Service Level Agreement explained! Understanding what SLA means.

Businesses thrive when they focus more time and resources on their core agenda. Building in-house support tools and services comes with increased costs, inefficient implementation, and added distractions because they are not your core business or specialty.

Sometimes it’s necessary to use third-party services or tools that specialize in that service area for a fixed cost. Using in-house solutions takes away time, resources, and energy that is better spent on your core business. In this article, we look at the SLA, the agreement that makes all this possible.

What does SLA Means?

SLA means Service Level Agreement. It is an agreement between a service provider and service user outlining their terms of cooperation.

An SLA describes the level of service from the service provider, the metrics by which service performance is measured, and the penalties or resolutions when the service provider fails to meet agreed-upon expectations.

A Service Level Agreement (SLA) is common in the IT industry as even large corporations outsource their peripheral operations to more efficient partners.

An SLA can be between a company and an external service provider. However, an SLA could be between different departments within a company.

In other words, SLA means a comprehensive contract between two or more companies that dictates how these companies will collaborate.

What’s inside an SLA?

An SLA should cover all aspects of service delivery in very specific and exact language. Unclear or vague definitions leave a lot of room for different personal interpretations from either party. To avoid disputes, make sure your SLA is very clear and avoid any phrases with double meanings.

Common topics covered in a good SLA are:

  1. Type of Service Being Provided
  2. Performance Level of the Service Offered
  3. Costs and Pricing
  4. Metrics and Indicators to Monitor Service Delivery
  5. Duties and Responsibilities of Each Party
  6. Problem Reporting & Resolution Procedures
  7. Scope, Processes, and Time-frame
  8. Penalties in case of Unmet Commitments

SLA Metrics

Service Level Agreements (SLAs) in different industries use different metrics to measure service delivery and performance.

In general, SLA metrics should be simple, easy to collect results, and preferably automated. The best metrics should:

  • only measure factors that the service provider can control
  • encourage good business etiquette
  • sufficiently measure service using specific and exact terms.

An SLA for a Call Center might contain metrics like:

  • Average Speed to Answer (ASA)
  • Call Abandonment Rate
  • First-Call Resolution

Examples of general SLA metrics include:

  • Service Availability: the amount of time that the service is up and running. Availability can be measured by comparing the service’s uptime versus downtime. For example, a service with 99.9% uptime is available for 999 hours for every 1000 hours.
  • Defect Rates: Ratio or percentage of service delivery errors as compared to successful ones.
  • Average time to respond: Average time taken before the service provider responds to the user.

SLA Types

SLAs are often divided into 3 categories, which are:

Customer-Based SLA

A Customer-Based SLA is a tailored agreement between a service provider and an individual customer It covers all the services that the customer uses. For example, an SLA between a Service Provider and the financial department of a company will cover all the systems/services they use, like payroll systems, billing systems, invoice systems, etc.

Service-Oriented SLA

A service-focused SLA between a service provider and all the customers who use their service. For example, a Telecommunications company offers the same standard service to all its customers.

Multi-Level SLA

A Multi-Level SLA addresses contracts at different levels. It allows organizations to draw a tailored SLA that is more suitable to the needs of the service user company.

Corporate– At the Corporate Level, the SLA describes general Service Level Management (SLM) details that apply to individuals in an organization. At

Customer – At the Customer Level, the SLA addresses all SLM issues about a customer. It does not address the services being used.

Service – At the Service Level, the SLA covers all SLM issues about the specific services offered to a customer group.

Service Level Agreement (SLA) Advantages

The benefits of using an SLA in a commercial partnership are many. From written evidence to clearly defined roles for each party, you are better off using an SLA.

A few other benefits worth mentioning are:

  • Improved Customer Service
  • Better Communication between user and provider: both parties can refer to the SLA to set client expectations.
  • SLA can be used to resolve future disputes
  • An SLA defines standard procedures that can be used by everyone.


A KPI or Key Performance Indicator is a performance measurement tool that measures your success at achieving key objectives, whereas an SLA is an agreement between two companies with mutually accepted metrics to measure service delivery and output.

Another difference is that an SLA is focused on the future and has clear penalties if a service provider fails to meet expectations, while a KPI only measures past performance and does not have any set penalties for failing to achieve a target.

However, KPIs and SLAs can work together. For instance, you can use an SLA to set goals and expectations but use KPIs to measure how well you are achieving your SLA targets.

Conclusion – SLA Means What?

To summarize this article:

SLA means Service Level Agreement and it is a mutual agreement between a seller and a buyer who are exchanging a certain service over a certain period of time. SLAs are divided into 3 types based on who or what they cater to.

On the other hand, a KPI is just a measuring tool to assess the achievement level of a key business objective.

SLAs come with mutually accepted metrics to measure service delivery by a service provider. SLA metrics should be simple, easy to collect results and be as specific as possible.

That’s all on SLA and the means of measurement. To read more on KPIs, click here!



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