An old-fashioned ink pen on a white background - SaaS SLA contract considerations concept
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As companies continue to move away from developing software in-house, they've been relying on Software-as-a-Service (SaaS) vendors to provide the services they need. In fact, the average company spent 78% more on SaaS products in 2018 compared to 2017.

But before jumping right in and signing up with a SaaS vendor, it's crucial that you have a firm agreement in place so that you get what you're expecting from the product and service(s) they provide. The last thing you want is to be locked in with a vendor that's not meeting your business requirements.

That's why we've turned to industry experts to learn more about what a service-level agreement (SLA) is, why you need one, and what you should look for before signing one.

What Is a SaaS SLA? 

An SLA outlines what the vendor intends to provide, and the client expects to receive regarding a particular service. It’s not a contract that’s exclusive to the SaaS industry, but "all commercial SaaS vendors offer SLAs," according to Louis Gottfried, director of technology at WineGlass Marketing

The agreement could "include details of availability and services as well as technical details," explained John Mason, director of customer experience at Nextiva. A typical SLA will outline metrics to measure the performance of a service, and the penalties if a vendor doesn't meet these requirements.

Related Article: SaaS vs. Cloud: Comparing Apples and Oranges

Why Do You Need an SLA?

SLAs are crucial for you to ensure the vendors you rely on will deliver on their commitments. "The point of the SLA is to assure the SaaS customer that if there is a service interruption, the SaaS vendor will have people and practices in place to resolve the disruption as soon as possible," explained Gottfried. In other words, the SLA gives you confidence that your vendors are prepared to mitigate issues promptly if they should arise.

"If [SaaS vendors] cannot live up to their SLA," Gottfried said, "the SaaS customer has a mechanism to either recover loss in revenue or terminate the vendor relationship." If a vendor can't meet the performance requirements of the SLA, this could negatively impact the bottom line of your business, so the agreement is meant to mitigate these risks for SaaS clients.

Related Article: Understanding SaaS Pricing Strategies

What to Look for in a SaaS SLA

"Since every organization has different needs you have to do your homework when it comes to SLAs," said Mason. You need an SLA that meets your particular company's expectations and should negotiate on what matters most to your organization. Here are some key areas to consider before signing an SLA.

Uptime Guarantee

A disruption in your SaaS could lead to a disruption to your customers, so you need your vendor to guarantee uptime of their service. "The industry standard for uptime is three nines (99.9%)," Gottfried continued, but he usually looks for services "that offer five nines of uptime (99.999%)." If a vendor can offer five nines, you know that they're confident in their services.

Clear Penalties

Poor service can affect the customer experience you provide, and therefore, your business success. That's why you need an SLA that ensures the vendor will compensate you for downtime or failure to meet other performance measures. "In terms of penalties," said Gottfried, "most companies will give you limited credit towards your SaaS payment due to downtime." Beyond that, some insurance companies will protect you from downtime or data loss, but this type of coverage can be expensive.


"Every SLA will also include some kind of exclusion clause mostly to cover software maintenance and acts of disruption caused by the customer themselves," explained Gottfried. If you don't use the service as intended, the vendor shouldn't be responsible for things that go wrong. Along with these types of exclusions, most SLAs will have exclusions for random acts of nature like natural disasters or other events that neither party could have predicted.

Right to Terminate

If you're not getting the service level you expected, you need to be able to terminate the agreement without penalties. "Look for the right to terminate based on things like uptime, inability to respond to service requests and not maintaining proper security (data breaches)," advised Gottfried. These adverse situations can have a dramatic impact on your business, so you need the right to end service immediately if they do occur.

Performance Reporting

You want the vendor to regularly provide you with reports on the performance metrics outlined in the SLA, so you know that expectations are being met. In addition, Gottfried suggested that brands "check to see if their SaaS vendor provides a real-time status page and that they are transparent about disruptions and provide historical information about any service downtime." 

Negotiate Where Possible

Finally, Mason concluded that "SLAs were created to protect the customer and the vendor," and so it’s vital that you not only comb through an SLA before signing it, but you also ask questions and negotiate where possible.