This article talks in-depth about Service Level Agreement (SLA), Service Level Objective (SLO), and Service Level Indicator (SLI), how to define them, and their importance. We also review the challenges of SLAs and some best practices to keep in mind. 

What Is a Service Level Agreement? 

A Service Level Agreement is defined as an agreement between the service provider and the client stating the level of the services to be delivered, metrics by which a service should be measured, and the remedies and penalties if the expected level of services is not met. It is an agreement between two or more parties in which the different aspects of the service to be provided, such as quality, responsiveness, and availability, are agreed upon by the service provider and the service consumer. A good SLA is one that contains achievable goals and objectives and is relevant to the customer.

While an SLA is an agreement between you and your clients, the Service Level Objective (SLO), specifies the objectives that your team should achieve to meet what’s stated in the SLA. Moreover, the SLU, or Service Level Understanding, contains the actual numbers on how you’ve performed.

Why Is an SLA Important?

SLAs provide the obligations and expectations of a relationship between a service provider and a service consumer and can help manage customer expectations, guarantee good service, and provide customer satisfaction. SLAs help build relationships and trust between a service producer and consumer, improving productivity and morale as well. Without an SLA in place, it’s very difficult to know how well well you’re performing, as there wouldn’t be any transparency.

SLAs can be used to set boundaries and expectations for a specific type of service, establishing clear and measurable guidelines and thus protecting both the service provider and the service consumer in the agreement.

Types of SLA

Service Level Agreements are commitments to achieve certain goals; they outline the level of service expected between a service provider and a service consumer. SLAs and can be defined at any of the following levels:

  • Service-based SLA
  • Customer-based SLA
  • Multi-level SLA 

Service-Based SLA

A service-based SLA is one that covers one service for all consumers of the service such as, email, web hosting, etc. It should be noted here that in a typical service level agreement, the service level agreement will be the same for different consumers of the same service. 

As an example, consider the service level agreement between two companies A and B. Assume that company A is the consumer, and company B is a service provider that provides internet services to several consumers. To leverage these internet services, company A has signed up with company B. The agreement states that company B should be able to provide uninterrupted internet services. The agreement also specifies that if internet services are down for a continuous period of 24 hours, the monthly internet charges will have to be reduced by 50%.

Customer-Based SLA

A customer-based SLA relates to an agreement with an individual customer covering all services that are used by that customer. Let’s understand this with an example. Consider the relationship between you and your internet service provider. You might be leveraging several services offered by your provider, such as a free landline phone, data services, access to free online news channels, etc. But for all of these services, you may only have a single contract between you and your internet service provider.

Multi-Level or Hierarchical SLA

This is yet another type of SLA in which various aspects of an SLA are defined based on the customer’s organization. Multi-level SLAs are split into different levels, with the aspects of the SLA defined according to the organization of your customer. 

Multi-level SLAs are typically used when services provided are within the same organization and can have the following levels: 

  • Corporate-level SLAs refer to common requirements for every customer of a business
  • Customer-level SLAs refer to a specific customer or a set of customers of a business
  • Service-level SLAs are the lowest of all the levels and cover requirements for specific services

Defining Your Goals: Service Level Objective

A Service Level Objective is a key element of an SLA that serves as the benchmark for indicators, parameters, or metrics and is typically used to measure the performance of a service provider. It should be noted here that an SLA can contain several SLOs, including metric targets for uptime, internet speed, and customer satisfaction. Hence, while SLAs are formal agreements between the service provider and the service consumer, SLOs are specific and measurable commitments made to the customer to deliver 24/7 uptime, high internet speed, etc. Unlike an SLA, there is no legality involved in an SLO.

What Is a Service Level Indicator (SLI)?

An SLI is fundamental to an SLO in much the same way as an SLA is fundamental to an SLO. An SLI is defined as a metric typically used to measure compliance with an SLO and denotes the level of service provided to a customer. You should keep the SLI simple, choosing only those metrics that give business value. If you need to measure performance against an SLO, it is imperative that you take advantage of an SLI to make those measurements. You can’t have an SLA without an SLO, nor can you have an SLO without an SLI. 

A Service Level Indicator can be the internet speed provided by your internet service provider. A Service Level Objective can be “the internet speed will always be a minimum of 50 MBPS throughout the day.” A Service Level Agreement can then be a contract that states that if the internet speed falls below 50 MBPS, you get a refund on the monthly charges for a particular month.

Components of an SLA

An SLA should clearly state the services to be provided, KPIs, penalties, conflict resolution, and a few additional elements, as listed in this section.

The components of an SLA include the following:

  • Stakeholders: The parties involved in the agreement
  • Goals and Objectives: The goals and objectives of the SLA
  • Uptime: The percentage of time for which services will be available
  • Service Agreement: The scope, service assumptions, and customer and service provider requirements
  • Performance Standards: performance benchmarks used to determine if performance standards are being adhered to
  • Response Time: The time the service provider would need to respond to a request
  • Resolution Time: The time required by the service provider to resolve particular issues after they’ve been reported

The Challenges of Managing SLAs

Service Level Management (SLM) may be defined as the process of defining, documenting, monitoring, measuring, reporting, and reviewing the level of services provided by a vendor. SLA specification and management is important, as it enables the service provider to offer different levels of service guarantees. This improves customer satisfaction since the customer knows what to expect as far as the quality of service is concerned. 

Managing SLAs is a difficult task, as they are quite difficult to measure, report on, and meet. These challenges vary depending on the type of service. Also, it is difficult to find an organization that has a well-defined process for viewing and tracking service requests with transparency. More often than not, SLAs are not aligned with the business priorities of the service consumer.

You should be able to measure the SLOs that have been defined. Once you can do that, you can assess the service quality. Measuring the business value generated by an SLA is challenging, as, in most cases, the service providers have little knowledge about the customer’s internal processes, thus rendering them unable to provide service that can properly support their customer’s business and add real value.

SLA Monitoring and Reporting

In today’s world, reported issues should be fixed immediately; thus, monitoring and troubleshooting are imperative for customer satisfaction. Once an SLA has been defined, service-level achievements should be reviewed between the two parties, i.e., the service producer and the service consumer to ensure that the achievements comply with the objectives. To do this, SLAs should be monitored and reported on, based on the method and frequency stated in the SLA. Once the SLA is in place, it’s time to get quantitative!

The following are the important metrics used for SLA reporting. 

  • MTBF/MTTF: Also known as the mean time between failures and mean time to failure, this metric is used to measure the time that has elapsed before an error occurs. 
  • MTTR: An abbreviated form of mean time to repair, this metric indicates the time elapsed between an outage and when everything is back to normal. Ideally, this recovery time should be as low as possible.
  • Uptime: Yet another metric used to determine service performance, this is the amount of time that a service is available and operational. It is usually expressed as a percentage, so an uptime of 99% equates to 7 hours and 12 minutes of downtime in a month of 30 days. Ideally, an internet service provider should be adept at providing an uptime of 99.99%.

Best Practices

While there is no golden rule for preparing an SLA, you can follow the recommended practices to prepare one. An SLA should follow these best practices to drive business success and add business value.

  • An SLA should be documented in simple words and be transparent; both the service provider and the service consumer should know how to verify if the SLA standards are being met. 
  • An SLA should strictly adhere to the SMART model–the “Specific, Measurable, Achievable, Relevant, and Time-bound” model. 
  • You should prepare an SLA with the customer’s satisfaction in mind. 
  • An SLA should document clearly what the objectives are and should align with the customer’s desired outcome. 
  • An SLA should be measurable and must be reviewed and updated periodically. 
  • An SLA should be created for each measurable service provided by the vendor.


Although SLA, SLO, and SLI, are related concepts, the SLA is the most important since it is the agreement or binding contract you make with your clients. An SLA can comprise several SLOs, and once you have an SLA in place, you need those SLOs to define the objectives–the goals you need to reach. The SLI is all about measurement–it provides you the numbers from which you can determine just how well you’ve performed.

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