Service Level Agreement: What Every SaaS Buyer Needs to Know

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December 28, 2023
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Service level agreements play a vital role in the longevity of a SaaS contract. As a buyer, you should negotiate the SLA terms meticulously to have a long-lasting SaaS contract and a positive vendor relationship.

Every SaaS contract will include a service level agreement outlining the level of services a SaaS vendor must provide. They’re also termed as ‘Clauses’

There are clauses subject to both the buyer and the vendor. Both parties must adhere to it to maintain a seamless flow of operations. Failure to adhere to SLAs might lead to penalties and contract terminations from vendors or buyers. In this blog, we’ll focus on the buyers.

So, what are these clauses in service level agreements? And why should you pay attention to it as a SaaS buyer?

Well, this article is just for you. You’ll get to the intricate details of SLAs, including their importance and best practices. We’ll also outline the SLA components and how you can optimize them using skillful negotiation and contract management software.

What is a service level agreement?

A customer service level agreement, or SLA, is a formal SaaS agreement outlining the level of support and service a SaaS vendor will deliver to the customer.

An SLA usually includes:

  • Scope and quality of the service
  • Request turnaround time
  • Uptime guarantees
  • Performance metrics
  • Penalties
  • and more.

Service level agreements are a crucial part of the buyer-vendor relationship. They shouldn’t be overlooked, or you might have to deal with poor customer service, data breaches, liability issues, etc.

SLAs guarantee that you can expect a certain level or standard of service, with specified remedies or deductions if the service is not met.

Why are SLAs important?

SLAs are important because the SaaS buyer and the vendor can establish a firm commitment to each other. It clearly defines the service-level commitments a vendor must provide as part of the contract.

  1. Level of service: SLAs clearly outline the expected performance levels for the services provided. This ensures that the vendor and the customer know what to expect regarding technical quality and efficiency. Negotiating clear expectations is essential for a good SLA.
  2. Accountability: SaaS buyers can use SLA metrics and hold vendors responsible in case of a data breach or loss of revenue due to application downtime.
  3. Risk Mitigation: SLAs have clauses for risk management and backup plans. They specify the actions to be taken in case of application downtimes, ensuring that the impact on the customer's operations is minimized.
  4. Customer Satisfaction: Clearly defined SLAs contribute to trust. Knowing what to expect and if the vendor provides the agreed-upon service will increase your trust and satisfaction. This leads to healthy vendor relationships and prolonged contracts.
  5. Cost Management: SLAs can help in managing costs effectively. By specifying the service levels and associated costs, you can effectively budget and spend accordingly, preventing unexpected expenses.

Consider service level agreements like a shield that can protect you from legal issues and lawsuits. SLAs are used in various contract agreements to ensure that standards are guaranteed and upheld.

Having a customer SLA promotes accountability in the SaaS industry, creating clearer expectations for those involved.

What are the types of service level agreements in businesses?

There are three different types of SLAs:

Customer SLAs

The customer SLA is a contract term agreed upon between you (the individual customer) and the vendor. It includes all possible services like uptime guarantee, custom features, messaging, terms of cancellation, etc.

Service-based SLAs

A service-based SLA covers a single service for all business customers. It applies to a particular service, such as an uptime guarantee for all customers who sign the service-based SLA.

Multi-level SLAs

These SLAs comprise different service levels, with various key performance indicators and standards for each level. It is usually customized based on the requirements of the end customer. It allows customers to add various features or services to the same system.

For example, an organization may have a lower uptime guarantee in a basic-level agreement than in a premium-level agreement.

There is also another internal SLA, mostly used between two teams of the same organization.

Who needs an SLA?

SLAs are integral to any agreement between a service provider and a customer. So, both parties require SLAs.

Buyers can use SLAs to ensure the cloud service provider meets their requirements per the agreed-upon terms and conditions.

Vendors can use SLAs to clearly understand the customer’s expectations and use them to differentiate from other competitors. SLAs can also help vendors prevent customers from disclosing app information or granting unauthorized access to third parties.

Likewise, you can hold vendors accountable in the unlikely event of data breaches or data theft.

What Should Be Included in Every Service Level Agreement?

1. Agreement Summary

SLAs are highly detailed. That’s why a customer-based SLA must have an agreement overview. This is where everything is expressed briefly and in summary.

Here, all services should be outlined, and who is involved in the business transaction should be mentioned. The response time, available services, deadlines, description of services, and metrics should also be included, allowing the customer to check on every detail immediately.

2. Calculated Figures

The SLA should also include calculated figures when needed. They don’t have to be highly specific, but an estimated graph of the growth, speed, and possible sales that can be done should be ideally highlighted in the SLA.

3. Scope and quality of service

The type of service that a SaaS buyer can expect and the quality of the service will be stated in the SLA. You can hold the cloud service providers liable if the scope or quality of the service is not met. It also works when the vendor's product has defects.

As a purchaser, it's essential to consider both the scope and quality of service, as technical issues may arise, and vendors are responsible for resolving them.

4. Roles and Responsibilities

This section defines the stakeholders involved in this agreement and their roles and responsibilities relevant to the agreement. The vendor and the buyer will have various roles and responsibilities within the agreement.

5. Uptime guarantee

An uptime guarantee will be included in an SLA by the vendor. It will provide a clear expectation of the level of availability and performance the SaaS vendor is committing to deliver.

The uptime guarantee might change depending on the product and vendor, and it is typically negotiated and agreed upon between the vendor and the customer.

6. Cancellation Conditions

While SLAs ensure the cloud services are received, it's important to note that they usually have an expiration date. They are often designed to apply for a certain amount of time rather than indefinitely.

Sometimes, there are also instances when the service provider and the buyer want to stop the partnership and look for new vendors. This is inevitable and expected in an IT service level agreement, so a cancellation condition should be provided initially.

Some vendors might charge a termination penalty if the contract is terminated prematurely; all these details should be stated in the SLA.

7. Compensation Goals Unmet

Ensure that the SLAs include provisions for compensating for unmet goals. SLAs are legally binding agreements that should be honored, and if the agreed expectations are not met, there should be corresponding consequences.

The compensation part of the SLA should have a clear explanation of what the consequences are and what the compensation would be if this happened. As a customer, you’re better protected this way, and you’re much more assured knowing that you have this to rely on when promises are not kept.

8. Points of Contact

SLAs should identify points of contact to enable customers or buyers to reach out to service providers when needed. Selecting a vendor with a well-defined structure for handling customer services is essential, allowing for prompt communication and swift resolution of issues.

9. Performance metrics

In this section, you can find the necessary KPIs that can be tracked or measured to analyze the performance of the SaaS vendor. This increases accountability and ensures the vendor doesn’t fail to provide the supposed services.

Performance metrics include turnaround time, resolution time, application uptime, and availability.

10. Penalties

Breach of contract by the SaaS buyer, early contract cancellation, failure to protect the data, slow turnaround time, etc. are some instances that are subjected to penalties.

SLAs will contain all the penalties and the instances, and both the vendor and the buyer must adhere to them.

Key components of an SLA

Even though service level agreements have various clauses, there are 8 key clauses that you must pay attention to:

1. Agreement Scope

2. Subscription and pricing plans

3. Service Level agreements

4. Data ownership and security

5. Liability

6. Termination and auto-renewal

7. Customer support and maintenance

8. Product Modifications

To know more about these clauses and look at SLA examples, click here.

When do I need an SLA?

Here are the indicators that you need an SLA:

Repeated Business

If business transactions are repeated between the service provider and you, get an SLA. If it’s a one-time event, the terms and conditions will suffice. However, if this service provider is already a part of your business processes, it’s safer to require an SLA so that you’re much more protected.

Supplier Handling Multiple Companies

It’s common for companies and organizations to intertwine when running a business. It’s common for companies and organizations to intertwine. Getting an SLA is easier if you have been transacting with a service provider who works with other industries. SLAs are agreements that keep everything organized.

High-Value Goods Sold

If you’re handling high-value goods, get an SLA for added protection. In this way, you’re assured about how the transaction would go between the service provider and you.

Crucial service

When purchasing an application from a SaaS vendor to carry out a critical business operation, opt for an SLA to ensure that the product offered is of the highest quality.

SaaS stack size

If your SaaS stack consists of 50 or so applications, you must get SLAs from all the existing and upcoming vendors to ensure that all your data is kept safe from breaches.

You can also include an indemnification clause in these SLAs that will prevent the vendor from holding you responsible in the case of a data breach. Data security is vital for an organization as they run on it, so you must clearly define your SLAs to keep your data secure and stay protected from liability issues.

Managing Service Level Agreements with a SaaS Contract Management Software

SLAs or other crucial SaaS documents can be managed using tools to simplify the management process.

One of these tools is CloudEagle. It is a SaaS management tool with contract management features that can centralize your SaaS contracts and secure sensitive documents from data breaches or cyber-attacks.

Businesses still use outdated approaches, like spreadsheets, to manage and track their SaaS contracts. This practice is prone to errors and breaches; sometimes, your team might lose the contracts.

With CloudEagle, you can upload all your contracts to the platform. It will extract the contract metadata and other agreements and map them to each vendor or the applications, making it easier for you to track, review, and retrieve them during SaaS renewals.

Check out this customer success story from Aira and how they streamlined contract management using CloudEagle.

Wrapping up

Service level agreements are legally binding documents between a SaaS vendor and the buyer that stipulate the services a SaaS vendor must provide.

As a SaaS buyer, you must know what it is and request that your vendors provide SLAs before signing the contracts. This article emphasized the importance of SLAs, what they contain, and when you need them.

So, the next time you’re negotiating with the vendor to purchase a new application, ask the vendor to include the SLAs. But don’t make the mistake of tossing the SLAs in shared folders or decentralized locations.

Use SaaS contract management software like CloudEagle to store and manage all your SaaS contracts in one location and easily review and retrieve them whenever necessary.

If you’re tracking sensitive contract documents in spreadsheets and storing the contracts in employee inboxes, talk to our experts and centralize your contracts now.

Written by
Kevin Lee
SDR, CloudEagle
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