Service level agreement (SLA): Overview, definition and example
What is a service-level agreement (SLA)?
A service-level agreement (SLA) is a contract or part of a contract that defines the specific standards and performance levels a service provider must meet. It sets measurable expectations, like response times, uptime guarantees, or delivery deadlines, ensuring clarity about what the customer can expect. If the provider doesn’t meet these standards, the SLA often includes remedies, like refunds or penalties.
For example, a cloud hosting company might commit to 99.9% uptime in its SLA, meaning its servers can only be down for a total of 8.76 hours per year.
Why is a service-level agreement important?
An SLA is important because it creates accountability and builds trust between the service provider and the customer. It ensures both parties agree on what’s being delivered and how performance will be measured. For the customer, it provides protection if the service falls short. For the provider, it clarifies what’s expected, reducing the risk of disputes.
SLAs are particularly critical in industries like IT, logistics, or telecommunications, where reliability and timely performance are non-negotiable for business success.
Understanding a service-level agreement through an example
Imagine a company outsources its customer support to a call center. The SLA specifies that the call center must answer 90% of calls within 30 seconds and resolve 80% of issues during the first call. If the call center fails to meet these targets, the agreement allows the company to reduce its payments for that period.
In another scenario, a delivery company might commit to delivering 98% of packages on time under its SLA. If delays exceed this limit, the delivery company might owe refunds or discounts to its clients.
An example of an SLA clause
Here’s how a service-level agreement clause might look in a contract:
“The Service Provider guarantees a minimum uptime of 99.5% for the hosted platform each calendar month. In the event of downtime exceeding this threshold, the Service Provider shall provide a service credit equivalent to 10% of the monthly fee for every additional hour of downtime, capped at 50% of the monthly fee.”
Conclusion
A service-level agreement defines clear performance standards, creating transparency and accountability in service relationships. It protects customers by ensuring they get the quality they’re paying for, while also helping service providers maintain clear expectations and focus on delivering consistent results.
By including a well-drafted SLA in contracts, businesses can reduce misunderstandings, address performance issues proactively, and strengthen their professional partnerships. It’s a vital tool for ensuring reliability and trust in service-based arrangements.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.