My first experience in a B2B model got off to a horrible start. Day after day, furious customers would flood my mailbox with complaints, and I felt like a failure.
Instead of doing product management, I ended up doing a kind of customer relationship management. I had to deal with complaints like the following:
As an inexperienced B2B product manager, it took me a couple of months to understand the real problem: unclear expectations from customers and no service-level agreement whatsoever.
In this guide, we’ll define what a service-level agreement (SLA) is, explore common types of service-level agreements, and review what’s included in a typical SLA.
Note: This article is intended to provide general information about service-level agreements and is not a substitute for professional legal advice. The templates and examples provided in this article should be used as a starting point and not as definitive legal documents. Always consult with your company’s legal department before drafting, finalizing, or signing any service-level agreement.
A service-level agreement (SLA) is a contract between a service provider and a client that clearly outlines the expectations and responsibilities of both parties. This agreement sets the standards for the level of service the provider will deliver, detailing specific metrics such as response time, resolution time, and product-specific conditions.
The goal of a service-level agreement is to maintain transparency between the provider and the client, ensuring consistent service quality and accountability.
In any relationship, all parties need to know what to expect (and what not to expect) from each other. Whenever that exchange is unclear, frustrations and conflicts arise.
As in the story I shared earlier, the lack of an established agreement regarding response time, resolution time, and uptime can lead to a discrepancy between how you perceive the quality of your product and how your customers perceive it. Whenever you leave something up to interpretation, you will be surprised, and not in a fun way.
With a SLA, all parties agree on a time range to address the available services. When the range isn’t respected, a fine may be applied to the side breaking the agreement. The penalty isn’t mandatory, but it’s a common practice in B2B.
The task of writing a service-level agreement typically falls on the service provider because it best understands the capabilities and limitations of the service. That said, creating SLAs is a collaborative effort that involves input and negotiation from both the service provider and the customer.
It’s crucial for both parties to be involved in the process to ensure that the agreement is realistic, achievable, and mutually beneficial. Lawyers and/or the company’s legal department may also be involved to ensure that the agreement is legally sound and protects the interests of both parties.
A basic, generic service-level agreement typically includes information and articulates expectations around the following:
When writing a SLA, it’s particularly important to articulate the expected response when service issues arise. This includes clearly communicating the service provider’s obligations around the following:
Reaction time
How long does it take for you to look at something? It’s one thing to look at an issue and another to actually answer your customers’ cries for help.
People are anxious; don’t leave them high and dry without any information.
Response time
How long do you respond to requests? A bug impacting all your users has a higher priority than a time on your footer.
Set expectations and, preferably, categorize the expected response time based on the importance of a given issue.
Resolution time
You may not work on all requests from your stakeholders because some of them are unimportant to your product. Your response time consideration should include the time and effort it takes to explain those decisions.
Uptime
What is your application availability? For example, an uptime of 99.5 percent means you can have a downtime of three hours and 45 minutes per month, while 99.9 percent means you can be down only 45 minutes per month.
This is fundamental because you need to understand the business and your application. Commonly, you need some windows to run upgrades in your application.
Service-level agreements come in various formats. The three most common SLA types for external customers are:
A customer-based service-level agreement is tailored to meet the individual requirements of a single customer. This type of SLA covers all the services that the client uses.
Customer-based SLAs are unique and flexible, enabling you to customize the agreement based on the specific customer’s needs. However, it can be resource-intensive for the same reason.
A typical customer-based SLA might include the stipulations outlined in the template below. To use the SLA templates in this article, copy/paste the following into a document or spreadsheet and replace the text in brackets with information specific to your agreement:
Service-based service-level agreements apply to all customers using the services provided. It is a standardized agreement, which means it’s easier to administer because there’s only one agreement for any number of customers.
However, service-based SLAs lack the flexibility to cater to individual customer needs.
Here’s an example of what a service-based SLA might include:
Multilevel service-level agreements are a combination of customer-based and service-based SLAs. They provide a balance between standardization and customization, allowing you to provide different levels of service for different customer groups.
For example, a basic service level may apply to all customers, with premium service levels available for an additional fee.
Here’s a basic template for a multilevel SLA:
| Type of SLA | Flexibility | Ease of administration | Suitability |
|---|---|---|---|
| Customer-based | High | Low | For customers with unique requirements |
| Service-based | Low | High | For standard services used by many customers |
| Multilevel | Medium | Medium | For a mix of standard and unique service requirements |
Note: This article is intended to provide general information about service-level agreements and is not a substitute for professional legal advice. The templates and examples provided in this article should be used as a starting point and not as definitive legal documents. Always consult with your company’s legal department before drafting, finalizing, or signing any service-level agreement.
To provide a clear understanding of how service-level agreements work in practice, let’s look at examples of each type of SLA:
Let’s consider the example of a software-as-a-service (SaaS) company that provides billing applications.
A customer-based SLA between the company and client could guarantee 99.9 percent uptime, a maximum response time of two hours for high priority issues, and a resolution time of 24 hours for critical issues. The SLA would be specific to this client.
Such a service-level agreement might look like this:
In a service-based scenario, a SaaS customer relationship management provider might offer its services to multiple clients. The SLA might guarantee an uptime of 99.99 percent, data refresh frequency of once every hour, and a response time of 4 hours for support queries. This SLA would apply to all clients using that company’s services.
A service-based SLA between a CRM provider and its customers might look like this:
A company providing project management services to a large organization with many departments might opt for a multilevel SLA that assigns service tiers to various departments based on their unique needs.
For instance, developers might be guaranteed a response time of one hour, while the marketing might be guaranteed a response time of three hours.
This single SLA would cover the diverse service levels required by the different departments within the organization.
It’s fundamental to measure the health of your SLA. If you overpromise, you’ll receive loads of complaints. But how do you determine your actual capacity? Learning by doing is my answer.
First, determine which specific metrics related to the performance, reliability, and responsiveness of your product or service are most important to monitor. Ensure you measure all expectations mentioned previously for each category.
For example, whereas general response time isn’t helpful, the response time for critical and noncritical issues is actionable. This could mean tracking the average time it takes to respond to and resolve technical issues reported by customers or the time it takes to deliver software updates or patches.
In addition to response times, you should also monitor system uptime. Uptime is a crucial KPI for any SaaS business because low uptime can signal reliability issues that might breach the SLA and negatively impact the customer experience.
Other important KPIs to track might include the error rate of your software or the frequency and severity of bugs and crashes. These metrics provide insights into the quality of your product and can inform efforts to improve its reliability and performance.
My key learning is to set alerts when things go wrong. This helps you react faster instead of learning you have a problem once it becomes too big. For product managers, this might mean setting up automated notifications that alert you when a certain error rate threshold is exceeded or when system uptime falls below a specified level.
You don’t need to make it complicated. A simple dashboard with all key metrics will get the job done. Whenever something is out of your SLA, that should be clear so that it doesn’t go unnoticed.
I used to think setting detailed SLAs was a time waster and over-engineering. Now, I recognize the truth lies somewhere in between.
Not having a SLA is a no-go. At the same time, an overly complex SLA will confuse all parties involved and ultimately be unhelpful. The most important aspect is to craft an SLA that every party can agree to.
Key takeaways:
Featured image source: IconScout
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Dan Lawyer is Chief Product Officer at Lucid Software. He got his kickstart into product while working for Novell, which […]
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