SaaS Service Level Agreement Fundamentals

If you’ve ever provisioned a SaaS license, you might find it’s a lot like leasing a car. You generally can’t just pick a car and drive off the lot. You need to chat with a salesperson and develop suitable terms that work for you and the leaser. And even if you could pick a car and drive off the lot, would you really want to without hashing out some details first?

Before you sign on the dotted line, you’ll want to ask some questions like, “How much money down does the dealership require? How much are the monthly payments? Will they provide maintenance? How many miles am I allowed to drive per year and throughout the lease? What happens if I, or the leaser, don’t fulfill our respective responsibilities of the lease?”

As you define how you and the dealership will operate on and agree to the terms of the lease, you can rest assured that if a service failure occurs, you have a single document—the lease agreement—to reference for an appropriate course of action. This example analogizes how you might acquire a SaaS license and why you need a service level agreement (SLA).

So how does an SLA provide you with a single source of agreed-to terms? And what exactly is a service level agreement?

Read next: “What Is A SaaS License? What You Need To Know In 2021

What is a service level agreement?

An SLA is a vital portion of an IT contract that defines, in a single document, what level of service you, the end-user, can expect from a vendor. It dictates how the IT service is measured and what remedies or penalties would ensue should the vendor, or you as the client, fall short of meeting expectations.

Usually, companies and external suppliers establish SLAs, but two departments within a company can negotiate an SLA as well.

Why a service level agreement is important

SLAs legally protect you and your vendors from deliberate or inadvertent misrepresentation. By laying out the details, an SLA ensures that you and your vendor share the same understanding and expectations should service level disruptions occur.

An SLA can also protect you with an indemnification clause. An indemnification clause can state that the IT service provider will compensate your organization for any warranty breaches like outages and performance issues. It also states that your provider will pay you for any third-party litigation costs due to those breaches.

When is a service level agreement required?

You’d want to require an SLA to guarantee service satisfaction for your organization on cloud services, internet services, or any cloud-computing SaaS solution you’re outsourcing. Likewise, your vendor would want an SLA to guarantee your satisfaction.

Another reason you’d want an SLA is so you and your vendor can define your communication boundaries. You’ll want to get the best and most customer service value (responsiveness), and your vendor will want to maintain performance standards while protecting the amount of time and resources they’re committed to providing.

Types of SLAs

There are three primary types of SLAs: customer, internal and multilevel.

  1. Customer SLA: Defines the service level between a vendor and you
  2. Internal SLA: Defines the service level between the company’s internal departments like an IT helpdesk and its users
  3. Multi-level SLA: Defines the service level between multiple service providers and multiple departments

How a service level agreement works

Most of your vendors will likely offer standard template SLAs—sometimes many for varying service levels at various prices—and these can provide a starting point for negotiation.

The SLA will contain two main elements: service and management.

1. Service elements

Service elements list the levels of service specifics included and, sometimes for clarity, what’s excluded. They describe service availability conditions and define standards, such as time windows for each service level like prime time and non-prime time variances, also known as uptimes, downtimes, and response times. They also list each party’s responsibilities, how issues would undergo escalation, and identify cost and service tradeoffs.

2. Management elements

Management elements should define the SLA’s measurement standards and methods, reporting processes, contents and frequency, a dispute resolution process, and a process to update the agreement as needed. And although it should be covered in the contract, they should also include an indemnification clause, protecting you from third-party litigation due to the vendor’s agreement breaches.

Standard SLAs also often include these six components:

  1. An agreement summary: The summary should include what service the vendor will provide, to whom they will provide it, and how they, or you, will measure the service.
  2. Each party’s goals: In a customer SLA, the customer would define their goals or key performance indicators (KPIs) with a reasonable baseline. With internal and multi-level SLA, all parties would define their goals.
  3. Each party’s list of needs: Each party with goals would list what they need to achieve their goals like reporting, frequent consulting, and maintenance.
  4. Points of contact: Identify the teams and stakeholders, how they’re involved, and who takes responsibility for communicating to whom about what.
  5. Consequences: Outline what happens if the vendor fails to meet the SLA’s goals like compensation and credits.
  6. Cancellation conditions: Define what formal conditions would indicate the need for termination, like an underperforming quality of service metric level.

Service level agreement tips and best practices

Here are some tips and best practices when negotiating SLA terms with a vendor:


  • Research the SLA of every SaaS vendor you want to provision.
  • When requesting a proposal, include your expected service levels as part of the RFP for accurate vendor offerings and prices.
  • Before onboarding a SaaS product, study the SLA to ensure the vendor meets your company’s SaaS security requirements. Verify that it includes all required data loss and portability provisions.

Legal review

  • You, or legal counsel, should review and modify an SLA to ensure the vendor offers a fair contract.
  • Make sure the SLA is kept up to date because service requirements and vendor capabilities can change.

Business objectives

  • Align the SLA to your technology or business engagement objectives. Misaligning the SLA can adversely affect deal pricing, service delivery quality, and your overall experience as a customer.
  • Define the service-performance metrics, responsibilities, and expectations, and implement protocols should service affecting issues occur.
  • Verify service levels. *Most vendors make their statistics available online where you can check whether your SLAs are being met or if they’re entitled to service credits or other penalties as defined in the SLA.

*Usually, service providers identify the reporting processes and methodologies. However, you and the vendor should work together during the SLA contract negotiation to eliminate any possible misrepresentations about the process and support and management and reporting methods. For crucial services, you should invest in third-party tools to automatically capture SLA data for an objective measure of performance.

Read next: “What HR Needs to Know About SaaS Security

How Blissfully can help

SLAs are an important part of purchasing and working with SaaS tools. Blissfully can help you manage them and manage and optimize your SaaS stack.

With the Blissfully Platform, you can:

  • Track and manage all your vendors on a single comprehensive platform.
  • Stay on top of your contracts, never miss a renewal, set up an approval process that works, and keep spending under control.
  • Extract and maintain up-to-date metadata on all your vendor agreements through Blissfully’s Contract Concierge service.
  • Keep your contracts right where you need them. Upload them in Blissfully, then record key metadata for easy access.
  • Maintain all your key vendor contracts and documents in one platform for easy access.

To learn more about how Blissfully can help you manage your SaaS SLAs, request a demo.