The SaaS Buyer’s Guide to Service Level Agreements

5 mins
read time
April 20, 2023

Service level agreement, or SLA, is the understanding between a SaaS vendor and the client. This agreement signifies that terms and conditions are set and should be followed for the duration of the contract.

SaaS vendors are expected to follow this agreement to not only keep their brand in check but also to ensure they’re providing quality service to their customers.

SaaS buyers should also adhere to this agreement to ensure they get exemplary service from the vendors. It also necessitates that the buyers do not breach the terms.

For SaaS buyers, it is essential to have an IT service level agreement included in their transaction to clarify the services being offered and what to expect. To understand how service level management works, here is some information you should be aware of:

What is an SLA?

A 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

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

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.

SaaS buyers can use SLAs to increase their vendor’s accountability and hold them responsible in case of a data breach or loss of revenue due to application downtime.

SLAs can enable SaaS buyers to seek compensation from vendors during a breach, as they define penalties or remedies for such cases. Without an SLA, a SaaS vendor could potentially shift the responsibility onto the buyer for any data breach within their application.

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 an IT service level agreement 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 types of service level agreements to look out for in businesses.

Service-based SLAs

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

Customer-based SLAs

On the other hand, a customer-based SLA is the opposite and pertains to just one customer. It includes all possible services like uptime guarantee, custom features, messaging, terms of cancellation, etc.

Multi-level SLAs

These SLAs comprise multiple service levels, with different KPIs 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.

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 vendor meets their requirements per the agreed-upon terms and conditions.

And 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.

What Should Be Included in Every Service Level Agreement?

Agreement Summary

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

Here, all services should be outlined and mention who is involved in the business transaction. The metrics should also be included, allowing the customer to check on every detail immediately.

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.

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 vendor liable if the scope or quality of the service is not met.

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

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.

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 that 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.

Cancellation Conditions

While SLAs provide assurance for the services received, it's important to note that they usually have an expiration date. They are often designed to apply for a specific duration 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.

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.

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.

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 fall short of providing the supposed services.

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


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

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

Read now: SaaS Agreement Checklist: 10 Things You Need to Know

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, then 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 keep sensitive documents secure from data breaches or cyber-attacks.

An image of CloudEagle's contract management dashboard

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.

Here's how Aira centralized their SaaS contracts with CloudEagle

Wrapping up

Service level agreements are legally binding documents between a SaaS vendor and the buyer that stipulate the services a SaaS vendor is obligated to 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 an SLA.

So, the next time you’re negotiating with the vendor to purchase a new application, ensure that you ask the vendors 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.

Maximize your savings: Optimize your SaaS Stack Now!

Joel Platini
B2B content writer and marketer.

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