Finance
January 12, 2023

SaaS Service Level Agreements: How to get the most from them

A service level agreement can be tricky to navigate and customers often find themselves burdened with confusing jargon, vague terms, and loophole exploitations from the service provider. This article explores how to tackle service-level agreements and how to get the most from them.

What makes you return to the same SaaS product each time? Is it satisfaction with the product, ease of use, financial feasibility, or any other factor? It all boils down to the product providing what it has promised. If you receive all the benefits that have been agreed to, why wouldn’t you return to renew your subscription? It’s all about reading the fine print, specifically the SLAs. 

A Service Level Agreement (SLA) protects the vendor (providing the product) and the customer (subscribing to the product.) It protects the rights of both parties and reduces misunderstandings or miscommunication. To avoid such miscommunications, read on to understand SaaS service level agreement best practices.

What is a Service Level Agreement? 

A SaaS SLA is a documented agreement between the vendor providing the SaaS subscription and the customer using the product. The operative term, in this case, is “documented.” The terms and conditions of the agreement are laid down to ensure that the customer receives what the vendor promises. On the flip side, SLAs protect the vendor by defining the expectations of the customer and delineating the services they will receive.

The SaaS service level agreement is created by the vendor or service provider, and more often than not, has the vendor’s interests in mind. That’s why it is important to read a service level agreement closely before making any formal decision. The fine print can be overwhelming which is why SaaS buying platforms assist with purchases and contract management.

 An SLA outlines several terms for both the vendor and the customer. These terms include:

  • The price of the product, based on the features being purchased
  • Length of the contract
  • Availability of support team
  • Performance metrics such as customer service
  • Features being offered

An SLA is not iron-clad, nor is it a one-size-fits-all. The SaaS agreement can be tailored based on your needs and the features required by your business. Proper negotiation results in a fair SLA that keeps the interests of both parties in mind. 

Service level agreements can change and grow as the needs of the customer change. For example, a business increasing in size and number of employees will have growing SaaS needs. In these scenarios, SLAs must be revisited to ensure that your needs are met. Let’s take a look at the three different types of SLAs, namely, Customer SLAs, Service-Based SLAs, and Multi-Level SLAs.

What are the different types of SLAs?

Each type of SLA serves a different function. There are three types of SLA: 

1. Customer SLA 

A customer SLA, also known as an external service agreement, is one that is signed between a vendor and an external customer. Such SLAs are created to outline the obligations of the vendor and the expectations of the customer.  A Customer SLA can include (but is not limited to) the details of the service with specifications, the responsibilities of both parties, terms and conditions which include the cancellation policy, and the financial details of procuring the service.

2. Service-Based SLA

A service SLA, also known as an internal SLA, takes place between an organization and an internal customer. This internal customer could be another organization or a department within the same organization. An internal SLA is created to ensure deliverables within the organization and document promises being made regarding timelines and outcomes.

3. Multi-Level SLA

A multi-level SLA is tailor-made to suit the needs of a particular customer. It allows for specific terms to be altered or added to meet the expectations of customers. It addresses contracts at the corporate, customer, and service level. 

Each SaaS agreement sets clear guidelines and ensures that all parties are on the same page in terms of service standards. So far, we have deep-dived into SLAs. But SaaS SLAs aren’t just good practice, they are also necessary. Let’s look at why that is important.

Why are SLAs important?

SLAs between customers and SaaS product vendors are important for various reasons. The key reason amongst many is that an SLA is a foundational agreement and maintains a sense of trust between the vendor and the customer. 

 Surveys have shown that 80% of Americans don’t trust corporate executives and a strong SLA is a stepping stone to a long and healthy business relationship.

There are also other reasons why SLAs are important between SaaS product vendors and customers. This is because it:

1. Strengthens relationships and reduces risks

 An SLA document creates a bond of trust, albeit one that is bound by the law. SLAs reduce the stress and uncertainty felt by the customer and in turn, help develop a sense of assurance. This is beneficial for two reasons - it leads to the customer returning to the same SaaS company and gives the SaaS company continued business from the customer. 

 This sense of trust is also important in case of a data breach or SLA violation. With the SaaS safety guidelines laid out, the customer has a fixed roadmap as to how the vendor will handle the data breach.

 2. Document agreements and reduces back and forth

An SLA document is a formal legal agreement. Once put down on paper, it gives both the customer and the vendor a tangible document to look at with queries and concerns. SLAs reduce unnecessary conversations and unwanted back and forth when it comes to terms and conditions. If a customer has expectations that aren’t being met, they can revisit the SaaS agreement to remind themselves of the terms they agreed to. This also allows them to hold the vendor accountable when service isn’t up to the mark or there is an SLA violation. 

 The SLA allows for all the stakeholders to base conversations on agreed-upon terms and conditions. When on paper, both parties have clarity on the terms of their agreement.

 3. Ensures accountability

SLAs aren’t just for when things are running smoothly. It becomes increasingly important when things aren’t. When the vendor falls short of the mark and can't meet customer expectations (in the case of a data breach, reduced service quality, or unavailable customer service) it holds them accountable for their promises.  

 A well-drafted and strong SaaS subscription SLA incentivize vendors to meet their goals and provides customers with the best service possible. It also means that the customer has a recourse in case they aren’t happy with the service. 

 Why are SLAs beneficial?

 If put simply, SLAs are beneficial because they ensure that the SaaS vendor and customer are on the same page. This allows for the smooth functioning of the services offered by the provider and keeps expectations in check. There are also several more benefits such as: =

  1. Improving the experience of the customer and safeguarding the promises made in the contract
  2. Acting as a safety net for customers to fall back on if the SaaS application vendor’s services are not up to the mark
  3. Being legally binding and customers can turn to the law to support them when seeking restitution. Consider an SLA  as insurance, that assures customers that they have a fallback if their expectations aren’t met
  4. Establishing service standards with legally enforceable guidelines to be referred to by both the customer and the vendor
  5. Improving productivity within organizations and assisting in the goal-creation process for employees. When provided with a document outlining company expectations, employees have a guideline upon which to base their plans
  6. Managing the expectations of the organization in regard to its employees and also clearly outlining what the company expects out of them
  7. Establishing SaaS metrics, which are tangible indicators of performance, results, and requirements. Numbers are a straightforward way in which to measure both outcomes as well as deliverables

There has been much discussion about “well-drafted” SLAs, but what are those and what should they include?

 

What should be included in an SLA?

 As a customer, there are certain terms within an SLA that can affect the ability of the SaaS product to run smoothly and in turn affect your work. Here are some important terms to keep an eye out for in a SaaS contract:

 1. Guaranteed uptime

Guaranteed uptime is the amount of time that the software will function without errors, remain online, and provide services as outlined in the SLA. Most software has an uptime of 99.99%, which means that the software’s downtime is 0.01% in a year. To calculate the downtime period - the clock starts as soon as the software does not function optimally and does not provide the service it is meant to. 

Uptime is guaranteed in SLAs and ensures the customer that the vendor will be held accountable for the time the software does not function. A survey showed that with small and midsize businesses, 17% have lost revenue due to downtime. It is in the interest of the vendor to keep downtime to a minimum. 

 2. SLA performance metrics

SLA performance metrics are a benchmark to measure the quality of service being provided by the service provider. Often, vendors provide their performance assessments and SLA metrics to customers on an online portal. 

An SLA will also include a margin for error when it comes to the performance of the product. This includes a maximum number of security issues per month and also error rates within limits. 

 3. Availability of support and response times

Response time is the amount of time the service provider has to respond to a service delivery issue and resolve it. Based on the severity of the issue, an SLA should outline the amount of time the customer service will be able to respond and resolve the issue. Not all service delivery issues are created equal and it’s your responsibility to prioritize the ones that are more important and require a quicker response time. This varies depending on your needs and priorities.

 Other customer support requirements worth outlining are helpdesk and service desk access, email support, and phone support. The SLA should outline when these customer support avenues are available and in what capacity.

4. Penalties when standards are not met

This section in the SLA protects both the service provider and the customer in case SaaS service standards are not met. Vendors usually provide penalties in the form of credits when the service does not meet the SLA’s standards. Penalties can be in the form of free services or discounts on subscriptions based on the severity of the problem and the downtime period.

Another way in which a vendor protects itself is to include exclusions in the SLA. Exclusions are situations that are out of the control of the vendor and cannot be considered their fault. For example, the vendor will not pay a penalty when the problem has been caused by the customer. The specifications of those problems are listed in the SLA.

5. Privacy and security measures

Your data security is important and this section of the SLA outlines the security measures put in place by the vendor to protect your data. The privacy section of an SLA outlines the specifications of data ownership and how the data is transferred and stored. The SLA covers how long the data is stored by the vendor and what happens to the data after the customer ends their subscription.

 The SaaS agreement should clearly outline the security measures taken by the vendor, the consequences of a data breach, and how the vendor will handle it.

 ( source

6. Billing plan

 Lastly, you should be aware of how services will be billed by the vendor. The SLA should have a breakdown of services provided and how you will be charged for each one. Other charges that should be included are the cost per user, the length of the contract, and the frequency of billing (whether it is a monthly or an annual plan).

 Tip: Look out for vague terms in the SLA, such as ‘service fees’ as the break-up of the charge isn’t specified - clarify all terms before signing the contract.

 Now that you’re aware of everything that goes into a SaaS SLA, let’s look at some of the ways you can effectively negotiate to get the terms best suited for your business.

How can SLAs be best negotiated?

 With each of the sections of the SaaS SLA mentioned above, there are certain steps you can take to get the best SaaS agreement - one that suits your needs and requirements. 

To begin with, some vendors reduce the uptime mentioned in the SLA to give themselves breathing room when it comes to delivering on promises. In an ideal scenario, the vendor is underselling and over delivering. For example, while the vendor offers 90% uptime in the SLA, in reality, the uptime is 95%+. As a customer, find a middle ground between the vendor’s promise and over-expectations. Not all vendors offer a 99.99% uptime but not all need to underpromise and offer 90%. Negotiate to find a number you are comfortable with.

As mentioned above, some vendors use an internal performance metric which is made available online. However, err on the side of caution with such assessments, as they have been created by the vendor and exploit loopholes they may have found in the SLA. It is beneficial to use a third-party tool to review and assess the product’s performance to receive unbiased feedback about the effectiveness of the SaaS product. Also, negotiate the margin of error to a percentage most comfortable to you.

Understand your needs and priorities and delineate them in the SLA to come to an understanding as to which issues to address first with customer support. The priorities laid out by the vendor may not match yours. Ineffectively negotiating about the response times with customer support leads to delays in your work.

Vendors often offer penalties in the form of credits when there’s an increased downtime. It is human nature to jump to asking for full refunds when services aren’t to your satisfaction. However, the vendor will follow the terms of the SLA laid down. Avoid dissatisfaction and negotiate before signing the contract.

( source )

Lastly, have clarity with the billing plan section of the SLA. Third-party SaaS spend optimization platforms provide adequate support for you to understand the best billing plan for you and your business.

SLAs are legally binding documents and though they can be revisited and reviewed in the future, preempt the problems and negotiate well the first time around. A good practice is to have an SLA checklist in place to make the process simple. 

 Checklist for SLA best practices

 Here are a few things that can be added to your best practice checklist when dealing with SaaS-provider SLAs. Remember, the list is not exhaustive, but rather, a small step in building your personalized checklist.

 1. Revise SLAs often, especially when the business needs have grown and evolved

 2. Have realistic targets both for the services of the vendor and your performance

 3. Set a timeline for reviewing SLAs at regular intervals

 4. Do your research and be aware of industry standards before engaging with and negotiating SLAs

Discussing negotiations and best practices may look straightforward on paper, but good negotiation skills come from practice. Below is a template to understand what an SLA looks like and what it includes.

 An SLA has three sections - the Service Level Agreement, Agreement Overview, and the Service Agreement; followed by the glossary and appendix.

  1. The Service Level Agreement section contains important technical information such as version details,document change history, and document approvals.
  2. The following section, the Agreement Overview, introduces the SLA, covers contractual parameters, and the purpose of the SLA, and also explains definitions, acronyms, and conventions.
  3. The third section, the Service Agreement, covers KPIs, metrics, service response times, exceptions, limitations, responsibilities, and security.

The SLA ends with the glossary and appendix, which charts the SaaS service pricing model.

 SLAs can be complicated, and with each new SaaS subscription comes a new SLA to understand and negotiate. Here’s where third-party tools come into play. SaaS service optimization tools help businesses negotiate SLAs to get the most out of their SaaS spend. 

How can SaaS spend tools help?

SaaS spend tools such as Spendflo assist with the procurement of SaaS software, cloud licensing, negotiation of SaaS SLAs, and help organize your SaaS subscriptions. By bringing all your SaaS products under one umbrella, it is easy to gain clarity on your SaaS stack and spend. Read more about how you can manage your SaaS spend management.

Vaishnavi Babu
Content
Karthikeyan Manivannan
Design

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