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Service-level Agreement (SLA)

What exactly is a SaaS SLA

SaaS Service Level Agreements (SLA) are contracts that can be formal or informal. It is a documented agreement between the provider of a service and an end-user. This contact clarifies the expected level of the service, and it specifies what the end-user will receive. This agreement can vary between industries, vendors, and services.

What is Included in a Service Level Agreement

There are two key components/elements of an SLA. These are elements of management and elements of service.

Management

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Management elements usually include the contents and frequency, an indemnification clause that protects the end-user from third-party litigation, a mechanism for updating the contract as required, the definitions of methods and measurement standards, a dispute resolution process, and finally – reporting processes. 

Service

Service elements of a SaaS Service Level Agreement need to include the specifics of services provided as well as what is excluded, standards like a time window for each level of service, responsibilities of each party (both the provider and end-user), escalation procedures, conditions of service availability, and service/cost tradeoffs.

Multiple types of SLA’s

  • Service-based service level agreements
  • Multi-level service level agreements
  • Customer-based service level agreements

Service-based SLA’s are when all of the customers that work with a service provider receive similar or same terms. A good example of service-based SLA is those of mobile or internet providers. These will almost always indicate the services it routinely offers and if additional services are available.

A Multi-level SLA is when a single service level agreement can be divided into levels that specify a set of customers that are using a single service.

Customer-Based SLA’s are when the end-user and provider form an SLA based on the services that will be provided. These are pretty simple and don’t need much more explanation. It is about the end-user wanting a specific service from a provider.

Now that we have the basics out of the way, what are some of the SaaS SLA best practices?

There are a couple of things you’ll want to do and check for when creating an SLA. You can find multiple websites with various templates, but as a reminder – forming a Service Level Agreement (SLA) should always be left to your legal counsel.

Onto the SaaS SLA best practices:

  • Align the SLA with the customers desired outcome.
  • Create separate service level agreements for each service you want to measure
  • Don’t create service level agreements that cover all your organization’s divisions
  • Make sure that service level agreements account for usual as well as unusual exceptions
  • Make the service level agreements measurable
  • Review and adjust the service level agreements regularly

While there are some things that you should always do and look out for, there are also a couple of “don’ts” that you should always avoid when creating an Enterprise SLA. End-users will always ask questions as they negotiate the terms of the SaaS enterprise agreement, so you should always keep these things in mind when discussing the terms of the SLA.

Never offer discounts unless you are getting something in return – This is self-explanatory. Most SaaS customers will want to get some kind of discount, and they will almost always be willing to give up something in return for a better deal.

Prohibit the customer from exceeding the capacity they purchased – While this should almost always be the case with any SaaS, you should also provide the end-user with the ability to exceed the capacity for which they paid for and then pay later. While this may sound contradictory, providing the user with some ease of administration is enticing to them, and may lead to more sales down the line.

Price and terms are linked – Price and terms should always be linked. If the end-user wants to make a bigger commitment in the form of duration, minimum spend rates, upfront payments, and similar, you should also give them a better price. The opposite should also be true, however.