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What are Service Level Agreements? (SLAs)

August 4, 2020 - Management - 12 minutes

Service Level Agreements (SLAs) are an important part of any transaction and (if done correctly) will help you stand out from the competition. Any business that offers a service or trade should be taking advantage of SLAs when creating a contract for a client. 

If your business isn’t currently using SLAs when signing up new clients for your service, there’s a good chance that you’re leaving money on the table. But don’t worry, it’s never too late to start incorporating them into your business plan.

Table of Content

  1. What are Service Level Agreement?
  2. Why Should you be Using Service Level Agreements?
  3. The Three Types of Service Level Agreements
  4. What Happens When a Service Level Agreement is Breached?
  5. How to Prevent Breaches
  6. How to Write a Service Level Agreement (External vs Internal)
  7. The Next Steps
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What are Service Level Agreement? 

A service level agreement is a document within the contract that outlines a set of deliverables from one party to another. 

They often come with financial penalties in case of non-compliance so they’re definitely no joke, especially for a growing company. 

In most cases, you can assume that the SLA will be between a service provider and a customer, but it can also be used for other purposes. 

Simply put, let’s say the field service company stated in their property maintenance contract tender that downtime on an appliance will not exceed eight hours, the service level agreement is what compels them to keep their promise and send a tech to fix it within the allotted time, saving the property managers a lot of headaches.

Why Should you be Using Service Level Agreements? 

Competing for service contracts is a complex process, but the gist of the matter is that every property manager and commercial customer is looking for a company that can prove its reliability and is willing to take as much of the responsibility off their shoulders as possible. 

More so than low prices and business-killing discounts, proposing a convenient service level agreement can show potential customers how good you are at preventing appliances from breaking down. More so, you can also demonstrate how quick you are at reacting in an emergency repair situation. 

From this, you can also demonstrate that regular maintenance can save them from expensive asset replacements and will keep their business from functioning by reducing the likelihood of an asset failing. Together, these points can win you profitable maintenance contracts. 

This is your chance to use previous statistics from your other work in order to show that your service level agreement proposal is not just an empty promise, but that you’ve got the service track record necessary to support it. 

One particularly good way to leave competitors in the dust is being able to figure out and then present your past compliance rate. This can give you a huge advantage over other field service companies who don’t have this information or aren’t willing to share it. 

If you can demonstrate that your business has a history of completing service level agreements consistently, with a solid track record indicating as few breaches as possible (ideally none), you’re far more likely to impress and win more contracts. 

The Three Types of Service Level Agreements

1. Customer Service Level Agreements

The name should speak for itself, but just in case – Customer SLAs are the agreements between a business and client that details the service to be provided, the compensation behind it, and what would happen if the service wasn’t up to the agreed standard. 

For example, say you run a landscaping or yard work business and are required to service a large property twice a month. You can write the SLA to show the service will take place biweekly, at a reasonable rate, and state that if the work is not completed or done incorrectly within that time frame, the price will be discounted. 

2. Internal Service Level Agreements

Internal SLAs are going to look and operate a bit differently than your standard customer SLA. Instead of creating a contract for a service between two parties, they are internal documents used to communicate a process between two departments. 

For example, there could be an internal SLA to document a process for how sales and marketing should communicate useful information – like leads on new business, the metrics behind them, and what to do if a specific goal is not met throughout the length of the SLA.

3. Multilevel Service Level Agreements

Bringing together the two types of SLAs mentioned above will result in a Multilevel SLA. These are used when there are multiple businesses and/or customers working together to provide a service. 

If there are more than two companies or departments (e.g. a maintenance company providing both the plumbing and the electrical work) involved in a project, it’s a great idea to create a multilevel SLA that details the order of operations from start to finish. 

With a document like this, all the stakeholders will be able to see the information they are looking for. This will help keep a smooth workflow that’s clear of confusion and results in satisfied clients.

What Happens if a Service Level Agreement is Breached?

Investing in new resources like technicians, tools, and software can seem like a big expense and it’s normal to think that once you’ve won a commercial contract, you’re set to laugh all the way to the bank. But that sweet advance pay you’re too busy counting can easily be absorbed by the costs of not being able to comply with service level agreements. This is also why you shouldn’t make claims that are too lofty when tendering for contracts, aside from, you know, a basic sense of honesty. 

If you want to get an idea of how much breached maintenance service level agreements can cost, just imagine a situation where you were due to service an elevator but forgot about it and there wasn’t anything there to notify you. Not only will your customer likely terminate your contract if the elevator malfunctions and someone gets stuck in it, but they will also sue you for a lot more than the few hundred dollars you would’ve had to invest in improving your resources. 

This might be an extreme situation, but every breach comes with a penalty. 

Often, it’s the cost of downtime that the customer suffers. For example, if a restaurant can’t open because its ventilation system doesn’t work, the owners will incur a couple of thousands in business losses, maybe more. If your service level agreement promises downtime no longer than five hours for every appliance, ventilation system included, then your HVAC company is liable to cover the restaurant’s losses.

Of course, losing money and losing a potentially lucrative contract is a big blow to your business. But let’s say you’ve got the cash flow to weather it; the problem is that your finances might recover, but your reputation and chances of winning other contracts in the future won’t. This is because a failed maintenance service level agreement will follow you further down the line. 

How to Prevent Service Level Agreement Breaches

Prevention is always better than cure. This means that instead of only making a plan to deal with eventual breaches you should plan to prevent any disasters down the line. That’s why prevention protocols exist. 

The easiest method is to use software that has visual countdowns and timers to aid your operations manager. A dedicated service level agreement feature is ideal because it offers them the option of seeing, at a mere glance, how much time they have until a breach occurs, across however many contracts you have. Additionally, there should be an option to schedule a technician who will receive an instant notification on their mobile device. 

At the same time, said software should allow you to set up notifications according to the following criteria – or we guess you can MacGyver something up to let you know (although why would you?): 

  • Start of an SLA being tracked: letting an engineer know the clock is ticking.
  • SLA at 50% completion: criteria still needs to be completed, but is compliant.
  • Confirmation of an SLA being completed i.e. is no longer being tracked.
  • Confirmation of an SLA breach. This could indicate that follow-up is needed.

How to Write a Service Level Agreement – External vs Internal

There are six key pieces of information you should include when creating a customer, internal, or multilevel service agreement. 

1. Summary of Terms

Since an external service level agreement will almost always be a portion of a larger contract, it’s important to briefly state the type of service, who the customer is, and when and how it will be completed. You don’t have to worry about supplying major details here, as you will throughout the rest of the SLA. 

If you’re creating an SLA for internal purposes, the summary should briefly state what departments the SLA is for and how they will be working together to accomplish the goals ahead of them. 

2. Goals of Contract

When working with external clients, these will be the goals that the client hopes to achieve through the service or job. This section can vary widely based on the type of business you run and the type of customer you’re selling to. 

When creating an internal SLA, the goals will be based on the performance metrics set out by the departments involved. In this section, list specific numbers and goals that the teams working together should achieve and what is to be done if they don’t meet them. 

3. Requirements and Deliverables

In this section, tell your customers (in detail) how you’re going to be performing and completing the service or job and the costs behind it. This portion should also outline anything the customer will be responsible for (if necessary). 

If this is an internal SLA, discuss what the departments involved will have to provide to each other in order to hit the metrics set out before them. You can also discuss the chain of command and how information should flow across departments. 

4. Procedure if Goals not Met

Nobody enjoys thinking about what will happen if a service fails – or worse, fails to get provided. Unfortunately, customers like to know they’re protected or have some sort of backup from the company when it comes to uncommon issues or situations. 

When sending an external SLA, you’ll have to outline how the service will perform and what happens if your business fails to meet those terms. This could mean providing a discounted or free service – or providing additional benefits to the customer if the agreed-upon goals are not met. 

When using an SLA for internal operations, there could be consequences if the goals laid out aren’t met. This isn’t always the case, but if there are any rules or regulations that need to be followed, you can list them here. It’s best practice to use this space to list things the department will have to do if the goals aren’t met. 

5. Analytics and Reporting

Regardless of the type of business you run, you should have some sort of statistics on how your product will perform. Think about specific benchmarks and what information will be useful to your client.

For example, let’s say you own a company that hosts websites on a third-party server. You’ll be responsible for keeping those sites live – and if your clients know that the server is running and free of issues 99.7% of the time, they’ll be more confident in choosing your service when convincing them to go with your business. Any metrics you use to measure the standard of your service or useful statics that show off your business in a positive light are a great way to wrap up your SLA.

With an internal SLA, there could be some setbacks if goals aren’t hit. But you can also use falling short of your internal SLA goals as a learning experience between departments. 

6. Terminating a Contract

If there’s anything a client (or business) could do that would result in immediate termination of the contract – you should list it here. 

There’s nothing worse than miscommunication turning into an expensive problem. Making sure all parties involved are on the same page throughout the life of the contract will help avoid any technical issues down the road. 

The Next Steps in your Service Level Agreement Strategy

It’s easy to get so caught up in the details of maintenance service level agreements that you forget the purpose behind it all: serving your customer so well that they come back to you again and again. Faster service, better prices thanks to friendly suppliers, and more accurate scheduling deadlines are all benefits that make customers happy.

If you’re just getting started with service level agreements, we’ve created an editable spreadsheet for you to give you an overview of what goes into organizing such an important part of your maintenance contracts. If the spreadsheet looks a bit overwhelming, worry not, there’s a quick and easy guide that goes with it. Download both below!

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