Hosting service level agreement

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Published: 30 May 2024
Contributor: Michael Goodwin

A service level agreement (SLA) is a contract between a service provider and a customer that defines the service to be provided and the level of performance to be expected. An SLA also describes how performance will be measured and approved, and what happens if performance levels are not met.

SLAs are generally formed between a vendor and an external customer, but companies also use SLAs internally to formalize agreements between departments or teams.

SLAs are an important part of outsourcing and information technology (IT) vendor contracts, providing an end-to-end view of the working relationship. They help ensure that all stakeholders have an accurate understanding of the service agreement.

SLAs set customer expectations, hold providers accountable and ultimately help optimize the end-user experience. SLAs pave the way for a smoother working relationship, settling uncertainty and points of contention from the start, and help protect the interests of all parties involved.

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There are 3 primary types of service level agreements: customer-level (sometimes called customer-based SLAs), service-level and multilevel SLAs.

A customer-based SLA is an agreement between a service provider and a customer, whether the customer is external or internal. This agreement describes the service or different services that will be provided to the customer. For example, this agreement might be between a third-party cloud services provider and a tech company outlining the performance expectations of applications hosted in the cloud.

An internal SLA is an agreement between two different departments, teams or sites within the same organization. This agreement might be between development and business teams outlining the deployment cadence and overall expectations for a certain application or product.

A service-level SLA is a contract that details a defined service that is provided to multiple customers. If a provider offers a product with the same level of service and support regardless of the customer, they might use a service-level SLA.

For example, IT service management (ITSM) teams might use a common SLA for all customers that outlines the level of service customers can expect from their service desk when they contact the company for service support or to report an incident.

A multilevel SLA is an agreement split into different levels to incorporate more than two parties, or different levels of service, into the same agreement. A multilevel SLA might be used between an organization and multiple external providers, such as in a multicloud model with numerous public cloud providers. The agreement can also be set up between more than two internal teams or departments.

An organization that offers a product at different pricing plans or service levels, such as a SaaS product, for example, might also use a multilevel SLA that describes the service level and expectations for each product tier.

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