Service Level Agreements (SLA)
A service level agreement (SLA) is a documented agreement between a service provider and a customer that identifies both the services required and the expected level of service. The agreement varies between vendors, services, and industries.
Before subscribing for an IT service, the SLA should be carefully evaluated and designed to realize maximum service value from an end-user and business perspective. Service providers should pay attention to the differences between internal outputs and customer-facing outcomes, as these can help define the service expectations.
How to use it?
We provide a service level agreement format which can be used by the service provider to prepare an agreement about the terms and conditions between the two parties. Such agreement can be drafted on a plain paper or also can be on the company’s letter head addressed to the other party, signed and authorized by the service provider.
You can choose which document you want us to draft by our experienced lawyers with a free consultation call to understand the significance and get the document customized as per your business requirement.
Let us draft a Service Level Agreement from scratch, personalized and customized as per your needs!
What are the Types of Service Level Agreements (SLA)?
- Customer Service-Level Agreement
- Internal Service-Level Agreement
- Multilevel Service-Level Agreement
1. Customer Service-Level Agreement
A customer SLA is precisely what it sounds like: an agreement by a vendor to deliver a certain level of service to a particular customer. Here's a fun example:
In the TV show The Office, the company, Dunder Mifflin, supplies paper to various organizations. They might have a customer SLA stipulating that Dunder Mifflin will supply [Company X] with 50 reams of paper per month, shipped every Monday to [Address 1] and [Address 2] by Darryl Philbin -- with a confirmation of delivery sent to Jim Halpert. (Sorry, we had a little too much fun with the references in that one.)
2. Internal Service-Level Agreement
As explained earlier in this blog post, an internal SLA only concerns parties from within the company, rather than its customers. So, while a business might have an SLA open with each of its clients, it can also have a separate SLA between its sales and marketing departments.
For example, let's say Company X's sales department has to close $5,000 worth of sales per month in total, and each sale is worth $100. If the sales team's average win rate for the leads they engage with is 50%, Company X's marketing director, Josh, can work with the sales team on an SLA, stipulating that Marketing will deliver 100 qualified leads to sales director, Amy, by a certain date every month. This might include four weekly status reports per month, sent back to Josh by Amy, to ensure the leads Amy's team is receiving are helping them keep pace with their monthly sales goal.
3. Multilevel Service-Level Agreement
Multilevel SLAs can take several forms. This type of agreement can support a business's customers or the business's various internal departments. The point of this type of SLA is to outline what is expected of each party if there's more than just one service provider and one end user. Here's an example of a multi-level SLA in an internal situation:
It's a no-brainer for Company X's sales and marketing teams to partner up on an internal SLA that delivers leads from Marketing to Sales every month. But what if they wanted to incorporate a customer retention strategy into this contract, making it an SLA between Sales, Marketing, and Customer Service? After sales closes on 50 customers for the month, it's Customer Service's job to keep these customers happy and successful while using their product. In a multilevel SLA, Company X can have sales director, Amy, send monthly "customer friction" reports to Joan, the VP of service, based on dialogue the sales team has regularly with its clients. This helps the customer service team build a knowledge base that better prepares them for the pain points customers call them about.
What an SLA Includes?
The details of an SLA will differ among internal and external agreements. Nonetheless, there are common building blocks that each SLA should be sure to include, whether the recipient of the service is your customer or your sales team.
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1. Summary of Agreement
The first item on your SLA should be an overview of the agreement. What service have you agreed to deliver to the other party? Summarize the service, to whom it's being delivered, and how the success of that service is to be measured.
2. Goals of Both Parties
In external SLAs -- those between a business and its customers -- the goals stated in the agreement are primarily those of the customer. If this is your intention, work with your client to marry their needs with the abilities of your product, and come up with a measurable goal that your company can feasibly meet for the client on a regular basis.
Is this an internal SLA between your sales and marketing departments? Both teams should have their goals outlined in this section of the contract, while making sure that when Marketing hits its goal, Sales can reach its own goal as a result.
3. What's Needed by Both Parties
SLAs should include what each party needs in order to reach their goals. In agreements that serve a customer, keep in mind their needs might go beyond simply "the product." They might need more than that to reach their goals -- such as weekly consulting, reporting, and technical maintenance from you.
SLAs between sales and marketing teams should describe what they might need from the opposite department in order to help them hit their targets. Marketing, for example, might need weekly status reports on Sales' pipeline so the marketers can adjust their lead-generating campaigns accordingly.
4. Points of Contact
Who's in charge of making sure each party's goals are met? Sort out which team does what, and who talks to whom, in this section of your SLA. Is there a separate employee using the services, in relation to the employee who reports on performance every week? Make it clear who's involved in the SLA, and how.
5. If Goals Are Not Met
You might not want to think about it, but there should always be formal consequences when a goal isn't met as part of an SLA. Don't freak out, though -- these consequences aren't always business-ending situations. Include a form of compensation to the service's end user for when the service doesn't meet their agreed-upon goals. In external SLAs, this compensation can come in the form of "service credits."
For Sales and Marketing SLAs, work with your sales team to establish a plan for how any lost revenue is to be made up as a result of an unreached sales quota. You might settle on a strike system that holds certain employees -- in both Sales and Marketing -- accountable for diagnosing and resolving issues of low performance.
6. Conditions of Cancellation
Under what circumstances will your SLA be terminated? Whether your contract serves a customer or two internal departments, you'll typically find yourself putting the SLA on the chopping block when it's just not working. Maybe your goals have gone unmet for the last three months, or the current agreement simply doesn't have buy-in from everyone involved.
Come up with formal conditions under which you'd cancel the current SLA in pursuit of, hopefully, a better SLA.
How to Make an SLA for Marketing and Sales Alignment?
How to Make an SLA for Marketing and Sales Alignment?
As mentioned previously, SLAs are common between a business and new customers. However, SLAs can also improve internal alignment. When one exists between sales and marketing departments in particular, this agreement details marketing goals (like number of leads or revenue pipeline) and the sales activities that'll follow and support them (like engaging leads that were qualified by the marketing team).
Both the sales and marketing departments use this document as a commitment to support each other based on concrete, numerical goals. And guess what? 87% of sales and marketing leaders say collaboration between sales and marketing enables critical business growth.
Now, if you don't have a Sales and Marketing SLA in place, fear not: We've outlined how to create one below so that you can easily start aligning your sales and marketing teams.
To draft your SLA, you first need to align your Sales and Marketing teams around a shared set of goals -- or, as we put it before, the harmonious "Smarketing." This alignment can then dictate the creation of a written SLA that reflects these goals. Here's how to create an SLA with "Smarketing" in mind:
1. Calculate a numerical Marketing goal based on the sales team's quotas.
As a marketing department, not only should you have a concrete goal for each campaign you run, but you also should have a high-level numerical goal that aligns with the sales team's operations. At the end of the day, that'll mean qualified leads and actual sales from those leads.
Salespeople are driven almost entirely by their sales quotas -- the numerical goals that correlate with their compensation and job security. If Marketing commits to a similar, related numerical goal, it shows that the team is being held accountable in a manner similar to Sales. The trick, however, is to make sure your numerical goal can effectively power the sales team's numerical goal.
In order to calculate the marketing side of your SLA, you'll need the following four metrics:
- Total sales goal (in terms of revenue quota)
- % revenue that comes from marketing-generated leads (as opposed to sales-generated ones)
- Average sales deal size
- Average lead-to-customer close %
Then, it's time to do some calculations:
- Sales quota x % revenue from marketing-generated leads = Marketing-sourced revenue goal
- Marketing-sourced revenue goal ÷ Average sales deal size = # of customers needed
- Customers ÷ Average lead-to-customer close % = # of leads needed
2. Segment your goals by specific intervals during the year.
It might also be a good idea to reevaluate the marketing side of the SLA each month, as a variety of factors can change the numbers used in your calculations over time. To do so, create a document that tracks your SLA calculations by month, which should include the following metrics:
- # of marketing-generated leads
- # of those leads that became customers
- Revenue from those closed customers
- Total revenue closed that month from marketing-generated leads only
- Total revenue closed that month
You will also need:
- The average sales cycle length
With the figures above, you can re-calculate the metrics you started with on a monthly basis, or at whichever interval suits your business -- quarter, year, etc. Just make sure the same measure of time is used for both Sales and Marketing to maintain alignment. Have a look:
- # marketing-generated leads that became customers ÷ # marketing-generated leads = lead-to-customer close %
- Revenue from closed customers ÷ # of marketing-generated leads that became customers = sales deal size
- Total revenue closed from marketing-generated leads / total revenue closed = % revenue from marketing-generated leads
You could also take it one step further, and incorporate quantity and quality into these metrics. The above calculations provide you with a quantitative volume goal of marketing-generated leads. However, we know that not all leads are created equal, and as a result, some may be considered higher- or lower-quality than others.
For example, a decision-making executive might be a more valuable contact than an intern. If that's the case, you can do the above analysis for each subset of leads, and set up separate goals for each type/quality level.
Want to take it even further? Measure in terms of value, instead of volume. For example, a CEO may be worth $100, for instance, while a director is $50, a manager is $40, and so on.
3. Calculate Sales figures and their goals.
The sales side of the SLA should detail the speed and depth to which a salesperson should follow up with marketing-generated leads. When establishing this end of the SLA, consider these two sales statistics:
- Salespeople who follow up with leads within an hour are nearly seven times more likely to have meaningful conversations with a decision maker on the other end.
- However, only 7% of leads respond to a follow-up contact within five minutes after filling out a form.
Bottom line? Not all leads may be fit to send to Sales immediately. They often need to meet some minimum level of quality, like reaching a certain activity level, which can only take place after being nurtured by Marketing.
Nonetheless, engaging a lead the short time after he/she converts is critical to maintaining a relationship with them -- the question you have to answer is what that engagement should look like. Either Sales or Marketing should take action to start building that relationship, make nurturing easier, and set up the sales rep for success when she eventually does reach out.
Keep in mind this advice is futile if you don't consider the bandwidth of your sales reps. Sure, in a perfect world, they'd make six follow-up attempts for each lead -- in reality, though, they may simply not have enough hours in the day to do that. For that reason, you'll also need to factor in the number of leads each rep is getting (based on the Marketing SLA), how much time they spend on marketing-generated leads versus sales-generated leads, and how much time they have to spend on each one. If you're looking to conserve time, some of the follow-up -- email, in particular -- could be automated, so look into options there.
4. Set up Marketing SLA reporting.
Now that you have your SLA goals, it's time to track your progress against that goal -- daily.
To start, graph the goal line. Multiply 1/n -- n is the number of days in the month -- by your monthly goal. That should determine what portion of your monthly goal you need to achieve each day. You'll want to graph that cumulatively throughout the month and mark your cumulative actual results on the same chart. We call that a waterfall graph, and it looks something like this:
5. Set up Sales SLA reporting.
For the Sales SLA reporting, you'll have two graphs -- one monitoring the speed of follow-up, and the other monitoring the depth of follow-up.
To graph the speed of follow up, you'll need the date/time the lead was presented to sales, and the date/time the lead received her first follow-up. The difference between those two times equals the time it took for Sales to follow up with that particular lead.
Take the averages of lengths of time it took for Sales to follow up with all leads within a particular timeframe -- day, week, month -- and chart it against the SLA goal.
To graph the depth of follow-up -- e.g., the number of attempts -- look specifically at leads that have not been connected with, since the goal of the follow-up is to get a connect. For leads over a certain timeframe that have not gotten a connect, look at the average number of follow-up attempts made, and graph that against the SLA goal.
6. Communicate, celebrate, and address the achievement (or lack thereof).
Maintaining strong communication regarding how each team is performing on goals boosts transparency. If either team isn't reaching their goals, addressing that confirms their importance, while celebrating hitting those goals can aid motivation.
One Last Step When It Comes to SLAs
When it comes to what should be in your service level agreement, there's one final piece: Review these metrics on a regular basis to monitor your progress, and make sure both Sales and Marketing have access to the reports for both sides of the SLA.
This step helps to maintain accountability and transparency and allows for both teams to address issues -- or congratulate each other on productive results.