Service level agreement (SLA)
The part of a service contract that sets measurable performance standards, such as uptime or response times, and what happens if they are missed.
In short
- An SLA turns "good service" into numbers that can be checked.
- Missed targets usually trigger service credits, a discount on future invoices.
- Credits are rarely applied automatically. Someone has to claim them.
A service level agreement, or SLA, defines the level of service a supplier commits to. It sets specific, measurable targets, explains how performance will be measured and reported, and states the remedy if targets are missed.
Common measures
- Availability: for example, 99.9% uptime per month, which allows about 43 minutes of downtime.
- Response time: how quickly the supplier acknowledges an issue, often by severity.
- Resolution time: how quickly issues are fixed.
- Accuracy or quality: such as error rates in outsourced processing.
- Delivery: on-time delivery percentage for logistics services.
Service credits
The usual remedy for a missed target is a service credit: a percentage of the monthly fee credited back, scaled to how badly the target was missed. Serious or repeated failures may give the customer the right to terminate the contract.
Making SLAs count
An SLA only has value if performance is actually monitored. Many suppliers require the customer to request credits within a set period, and many customers never do. Reviewing SLA reports each month, and claiming credits when they are due, is part of managing the contract, and a routine source of savings.
Worked example
A missed uptime target
A company pays $12,000 a month for a hosted service with a 99.9% uptime SLA. In March, the service is down for 3 hours and 20 minutes, which is 99.55% uptime. The SLA provides a 10% credit below 99.9% and 25% below 99.0%. The company claims a $1,200 credit, which appears on the April invoice.