What is a Service Level Agreement (SLA)? Why is it important?

April 25, 2022

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When any service providers are assigned by the customers, they want to retain full control over the quality of the services provided by them and ensure their spending is worth the money. Hence, they required the particular indicators and metrics to be maintained, like in the IT services they want the perfect app server/web service uptime, issue resolution time, and support ticket response times.

The companies providing these services must ensure that their relationship lasts with the customers and that their end-users have a good experience. They cannot escape from their liability for providing quality services, therefore, Service Level Agreement (SLA) comes into the picture which sets the expectation between the companies and their service providers, so that the customers don’t suffer from getting poor quality services. This blog will help you to know everything about the Service Level Agreement and why it is needed for business organizations.

What is a Service Level Agreement (SLA)?

A service level agreement (SLA) is a written contract between a service provider and a company providing internet facilities to its end-users that clearly defines what exactly the services are required, the scale of service expected, and the provider who will offer the services. The SLA is generally a component of an outsourcing or other agreement for the provision of services. Service providers should address the differences between internal output and customer outcomes, which help in defining service expectations.

Hence, a Service Level Agreement acts as a blueprint of the services that are provided by the vendor and can protect the assets and reputation of your company. Although SLAs have been around for a while now, they became more popular about ten years ago when outsourcing started to dominate the IT industry.

Why is drafting a Service Level Agreement important?

The Service Level Agreement is not only necessary for the service providers to meet their customer expectations and specify the risk and conditions for performance issues but also the customers are benefited from it because it determines the service’s performance characteristics. It provides clarity to the services offered by using the criteria that will assess their performance between the two service contracts. Hence, the following are the reasons to consider why Service Level Agreement is important in any business organization:

  1. Aligning Expectations and requirements with service providers

A Service Level Agreement is used to align expectations with the requirements provided by the service provider. Hence, it helps the service providers to demarcate the line between what is needed by the customers and what they are providing that will help them to move forward with a realization of what is expected from them. They will outline their work according to the needs of the customers and improve the quality of services if needed.

  1. Establish clear and measurable guidelines

As an owner of a business organization or head of an IT department, you will need technical support solutions that meet your company’s requirements. This can be accomplished by drafting a service level agreement with your service provider that contains the terms of standards and services. Through SLA, your provider can work through your needs or expectations and ensure you will get what you’re paying for. Establishing clear and measurable guidelines is important as it sets expectations and allows for a level of accountability by your technical support services provider.

  1. Documentation of procedures and best practices

Before measuring the service quality delivered by the providers, you have to outline procedures and best practices that will be useful for the providers to focus on required customers. Quality can be measured only when the best practices are followed and these best practices can be adopted by the service providers by a briefing to their employees.

  1. Measuring service quality

When the service qualities are mentioned in the Service Level Agreement, there is no room for the service providers for delivering poor performance and have to constantly provide quality work to meet client expectations. These clear expectations make everything easier and ensure a long-term business relationship.

  1. Set realistic expectations for your customers

When a client is dissatisfied with the quality of service they received, it’s usually because the company didn’t fulfill their expectations of reaching on time or finding a solution. These expectations are explicitly stated in the service level agreement, so a client does not have to question whether an inquiry was received or when their grievances will be resolved. If it is explicitly written in the agreement that they will react within 24 hours, then the client should understand that it will take at least that long a period to solve the problem . Hence, it is important to craft a service level agreement with all the necessary clauses that will help to identify the agreed-upon timeframe.

  1. Ensuring clear communication

This agreement ensures clear communication between the service provider and business organization or business organization and its clients. First of all, understand which medium will be beneficial for the clients to communicate for either giving feedback or complaint. The mode can be Emails, Slack or Microsoft Teams, Trello or Asana, etc. Also, decide the medium through which a meeting between the service provider and business organization can be conducted. After that, decide how often the meeting will take place and the meeting format.

  1. Provide a redress mechanism for unfulfilled service obligations

If your service provider does not fulfill its responsibilities, it can have serious consequences for your company’s reputation and bottom line. If performance criteria are not reached, you should incorporate repercussions and a backup plan in your service level agreement. You might impose monetary penalties that could benefit your company if it suffers losses. This will aid you in defending your company in times of predicament. Also, clients can be indemnified by getting discounted rates and service credits from the service providers, if their expectations are not fulfilled.

  1. Consistent assistance

A well-drafted Service Level Agreement will oblige your team to maintain consistency to satisfy the agreement’s requirements. Your support team will be more consistent if you exemplify clear criteria. When a client approaches your support service for any reason, your objective should be to know exactly what they are expecting in return.

  1. Provides peace of mind

A service level agreement can provide peace of mind to those seeking the services of a technical customer support services provider. It will allow you to hold your service provider accountable for any repercussions and lay down the details of exactly the type of service you can expect. If mutual needs aren’t met, you can alleviate some of the impacts by making your provider compensate for the losses.

Service providers also prefer service level agreement because it goes a long way in retaining customers by providing excellent customer service reinforced by a rock-solid agreement. In short, Service Level Agreements are so important in every industry because they can be the difference between a good company and a great one.

  1. Create new business opportunities

If a client feels he is not getting enough personal attention, then he can begin new professional relationships with another service provider who can meet his needs better. As a result of this, leveraging business service level agreements can be a powerful sales tool. By addressing common gaps in service level agreements and creating transparency in the relationship, service companies can quickly address potential clients’ common concerns and clearly outline how they will ensure a high standard of service.

What are the types of Service Level Agreements?

There are three basic types of Service Level Agreements. These are:

  1. Customer Service Level Agreement

It is an agreement between a service provider and its external customers, also known as an external service agreement. In this, the customer and service provider come to a negotiated agreement on the services that will be provided.

  1. Internal Service Level Agreement

It is an agreement between an organization and its internal customer that can be another organization, department, or site.

  1. Multilevel Service Level Agreement

In this, the agreement is divided into various levels that are specific to a series of customers using the service.


A mutual arrangement of the terms of your agreement with your service provider is an important component in the creation of a positive experience for all involved parties. Any service provider you choose should be more than pleased to create a Service Level Agreement with you. By understanding what to look for in your agreement and drafting clear expectations at the outset of your client/partner agreement, you can ensure your company’s best interests are always the top priority and maximize the value of your business relationships. If you want to know more about service level agreement, contact eSahayak.

About Author

Shaily is a law student, pursuing B.Com LLb. (Hons) from University Institute of Legal Studies, Panjab University.

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