Over the years, more and more companies have been turning toward software-as-a-service (SaaS) vendors for the software services they need instead of going the route of in-house software development. In fact, in 2019, SaaS annual revenues worldwide jumped 22.5% year over year to $101 billion. It’s no surprise, then, that with growing reliance on SaaS products and vendors, the importance of service-level agreements (SLAs) has also significantly grown.
Nowadays, SLAs aren’t just a critical element in signing contracts with SaaS vendors but are a defining feature of them – and part of the SaaS company culture. While SLAs are in place to guarantee that customers get exactly what they want from the product and service(s) being provided, they are also beneficial for SaaS companies themselves. This is because SLAs help them stay accountable, which ultimately enables them to safeguard their reputation.
What is an SLA (and SLO)?
Before discussing how SLAs have become part of SaaS company culture, let’s first quickly touch on what they entail. An SLA details what the vendor plans to offer as part of his/her service and what the client expects to get. Typically, an SLA may include specific technical details of a particular service and its availability. It may also lay out metrics to measure the performance of a service (known as a service-level objective or SLO), and certain penalties if a vendor doesn’t meet the requirements. While an SLA is not unique to the SaaS industry, it’s so prevalent that almost all commercial SaaS vendors offer SLAs.
It’s important to note that an SLA isn’t a contract but, rather, a key part of a contract with service providers, such as software development or software support outsourcing companies. An SLA can range from being a few sentences to many pages. Visit our previous article about SLAs and how they differ from other metrics for more information.
Let’s take a closer look at the SLO, considered a key element of an SLA. SLOs provide a specific and quantitative way to measure the quality of service that the service provider is expected to deliver. These metrics typically include level of throughput, availability, response time, quality, frequency, etc. By providing measurable terms for the expected level of service that’s to be provided to the customer, an SLO helps avoid or prevent misunderstandings that might otherwise arise between both parties, thereby strengthening the SLA as a whole.
While an SLA defines what a service provider will deliver to a customer, it can also serve a company’s internal operations by outlining in detail the deliverables that one department agrees to provide internally or to another department. As such, an internal SLA can greatly enhance a company’s internal cross-functional processes and, in turn, boost overall efficiency and effectiveness. This is especially the case if one department, be it IT, marketing, sales, HR, or finance, etc., is delivering a recurring service that is critical for other departments to progress in their pipeline activities. It’s no wonder, then, that internal SLAs are part of any SaaS company culture, as they signify a commitment for departments to support one another by following specific, concrete goals and timelines that enable cross-team collaboration to achieve KPIs.
Why are SLAs so vital?
Because SLAs outline expectations – and the penalties for not meeting them – they assure customers that SaaS vendors will fulfill their commitments. For instance, if a service is unexpectedly disrupted, the SLA guarantees that the SaaS vendor will have the necessary resources in place to quickly resolve the interruption, or else offer an alternative. Generally speaking, SLAs give SaaS customers confidence that their vendors will either deliver or be prepared to resolve issues in a timely manner.
And if SaaS vendors can’t meet the requirements as stated in their SLA, the customer can use it to recover revenue loss or end the relationship with the vendor. For SaaS companies, SLAs provide accountability and a roadmap to achieve success. This is because SLAs clarify and quantify customer expectations in measurable terms. In essence, SLAs set clear, measurable standards for vendor performance and promote consistent delivery of high-quality services.
With regard to the importance of internal SLAs, the process of drawing up a formal SLA within one department or between multiple departments adds value by raising awareness for potential problematic issues, identifying lessons learned, and setting priorities and specific expectations, all of which can increase improvements. In essence, an internal SLA does more than just ensure delivery of a certain level of service; it serves as a tool to encourage and/or enhance communication within and between departments, thus boosting company professionalism and transparency all around.
Why SLAs have become an important part of SaaS company culture
The existence of SLA penalties incentivizes SaaS vendors to be more customer-service-oriented and focused on consistently fulfilling commitments to clients. This ensures compliance while preventing potential hits to their individual and company reputations, all of which enhance the company’s bottom line.
There are other benefits of SLAs that strengthen the company culture overall. For instance, companies with SLAs may appear as more professional and therefore may be taken more seriously by clients and customers. As SLAs outline the relationship terms between vendor and customer, the customers know exactly what kind of service they should expect, including what they are paying for. Such transparency eliminates elements of surprise or disappointment. Ultimately, this will result in fewer customer complaints for the SaaS vendors and company as a whole to have to deal with. Moreover, by setting clearly defined service expectations, and including what is or isn’t covered, both the company and customers can see – and work according to – the full, transparent, and detailed picture, which enhances efficiency on both sides.
In addition, SLAs are a sign (and maybe even a test) of a company’s credibility. Meaning, if a service provider can’t commit itself to a fixed standard of delivery, as outlined in the SLA, then the company may lack credibility. This will affect its overall culture and reputation. So, living up to an SLA may positively drive company culture.
An SLA is key in protecting the customer and the SaaS service provider, as well as promoting internal company collaboration. Besides credibility and commitment – from both sides – SLAs also promote transparency and reliability. SLAs ensure that both sides – or multiple departments within a company – have a productive and successful relationship with agreed upon performance standards. With transparency comes trust, which is important to establish and maintain a positive experience for all involved parties.