With the SaaS model becoming increasingly popular, SaaS companies need to understand the obligations placed on them by the new arrangement. Customers are demanding more from SaaS now. They want better uptime, greater reliability, and ease of use, which means that SaaS SLAs need to be more sophisticated.

As more businesses shift to the cloud, the global SaaS market continues to overgrow. According to a survey, SaaS revenue will increase from USD 167.53 billion to USD 462.94 billion in 2028.

Making a plan for your SaaS to ensure customers can always access it and enjoy reliability takes time and effort. That's why establishing a service-level agreement (SLA) is crucial to establishing your business.

In this write-up, we’ll discuss the basics of an SLA, including what it is, how to establish it, and some crucial components.

Understanding SaaS Service Level Agreement

A SaaS Service Level Agreement (SLA) is a contract between a SaaS vendor and its customers describing the minimum level of service the vendor will provide users. SLAs can be found in several different types of agreements, including:

• Cloud computing contracts. These are typically called "cloud computing SLAs."
• Software licenses, particularly those involving SaaS.
• Hosting agreements (e.g., Amazon Web Services).

Different Types of SaaS SLAs

The SaaS SLA is critical to one’s business risk management strategy. You can use various types of SLAs to fit your unique business needs.

Availability SLA

SaaS availability SLA guarantees 99.5% uptime (or higher). The remaining 0.5-1% may include planned maintenance, unplanned outages, and other factors that can cause user downtime. If a user exceeds the allotted time due to their own fault (for example, not performing all necessary updates), they may be charged extra fees by the provider. This all depends upon the agreement between the parties. An Availability SLA is usually measured in minutes, hours, or days of downtime per year.

Performance SLA

The minimum performance level that's guaranteed to be met by the service. For example, this could be measured regarding your users' response time or other important metrics. If it's not completed, you'll need to compensate them somehow (such as by providing free credits).

Security SLA

Security SLAs focus on ensuring that the client’s data is safe at all times. They cover both physical security (such as access controls) and technical measures (such as encryption). These agreements also define how quickly issues should be resolved in case they arise – such as how long it should take for you to respond after being contacted.

Disaster Recovery SLA

This outlines what happens in an emergency when service fails or becomes inaccessible to users. For example, if a flood or fire damages your servers, this SaaS SLA would cover the cost of restoring functionality as quickly as possible after such an event occurs.

Components of the SaaS SLA Agreement

SaaS SLA Agreement is a legally binding agreement between a customer and a service provider. The deal is established to define the terms and conditions of providing services and support.

The SaaS SLA Agreement can contain a variety of components, but here’s a list of the paramount features to have when you’re just getting started:

Promised Uptime

A guarantee that your application will always be available and performing as expected. This includes network latency, server failure, system maintenance, and more.

Performance Metrics & KPIs

Both parties should agree upon specific metrics and SaaS KPIs related to performance before signing an SLA agreement. These include error rates, site speed, and requirements for any new features or upgrades you plan to implement.

Privacy & Security

This section should define what personal data is collected, how it's handled, and how it's stored. It should also specify who can access this data, including your employees and third parties such as marketing agencies or other partners.

Response Times & Support Availability Requirements

A response time is when a customer submits a ticket to when it's addressed by support staff. If this time frame is too long, customers may lose confidence in your product or service and go elsewhere. Specifying an appropriate response time is essential so that both parties know their responsibilities under the contract.

Penalties & Exclusions

This part of the SLA agreement specifies how much compensation you will have to pay if your service fails to meet the requirements (usually in terms of payment).

Pricing & Billing Structure

This section should detail how you charge for your product or service — how much per month, what currency conversions will be used, when payments are due, etc.

Saas SLA Examples

Regarding SaaS SLAs, there are various examples of providers offering solid SLAs. You can take the following as an inspiration for your own SLAs:

Amazon Web Services (AWS)

AWS guarantees at least 99.95%  uptime for their services, and they have a comprehensive set of performance metrics and SLOs (service level objectives) for each service. They also have an extensive notification and escalation process to address issues quickly.

Salesforce

Salesforce offers a 99.9%  uptime guarantee for its services, and they have a variety of performance metrics and SLOs in place to measure the quality of its service. They also have a straightforward escalation process and offer service credits if their SLA needs to be met.

Benefits of SaaS SLA for SaaS Business Owners 

Here are some benefits of having Software as a service SLA for your business:

Facilitates Clear Communication and Accountability

SLAs help in ensuring clear communication between you and your customer. They also help both parties understand their responsibilities towards each other and their rights under the agreement. This helps streamline communication channels, reducing ambiguity regarding the roles or responsibilities within the contractual relationship.

Enhances Customer Satisfaction and Loyalty

The main objective of any business is to provide value to its customers by offering them a superior product or service. However, this can be easy if you understand your customers' needs well. This is where the SaaS SLA comes in handy. 

By specifying the quality standards for your product or service, you can better serve your customers' needs and expectations. The result? Higher customer satisfaction and loyalty!

Enables Better Planning and Decision-Making

SaaS SLAs enable better planning and decision-making by providing information about how well your product or service performs and how quickly you can respond to issues or complaints. This helps you make better decisions regarding resource allocation, team size, etc.

Encourages Continuous Improvement and Innovation

SaaS SLAs encourage continuous improvement in your business processes by providing timely feedback on the performance of your product or service. This enables you to identify areas where improvements can be made and opportunities for innovation within your business model.

Mitigates Risks 

A well-crafted SaaS SLA can help mitigate potential liabilities associated with service disruptions or downtime. By defining clear remedies and compensation for service failures, you can help protect your business and your customers in the event of an outage or other service disruption.

Conclusion

Service Level Agreement (SLA) is critical to any Software as a Service (SaaS) contract. It sets the expectations for the level of service a provider will deliver and the consequences if they fail to meet those expectations. 

An SLA helps businesses ensure they receive the assistance required to keep their operations running smoothly and avoid costly downtime. 

Apptension offers a full suite of SaaS product development services to help businesses achieve their goals. From idea discovery to product growth, our team of experts is dedicated to helping you conquer your target market.