Service levels and KPIs

What is a service levels clause?

A service levels clause turns “good service” into numbers. It lists what the provider measures, the target for each measure, how and how often it is measured, and what happens when a target is missed.

The service levels can sit in the main contract, in a schedule, or in a separate service level agreement (SLA) attached to a master service agreement. Wherever they sit, they work the same way: a promise you can check, with a consequence attached.

Example: “The platform will be available 99.9% of each calendar month, excluding scheduled maintenance. If availability falls below 99.9%, the customer receives a service credit of 5% of that month’s fee.”

SLA vs. KPI: what is the difference?

Both are performance measures, and contracts often use both. The difference is what happens when the number is missed.

A common setup is to start a new measure as a KPI, collect data for a few months, and then turn it into a service level once both sides know what a fair target is.

Service level examples by type of service

The measures depend on what is being bought. Typical service levels:

The numbers above are illustrations. The right target depends on the service, the price and what the business actually needs.

How to write a service level that works

A service level is only as good as its definition. For each one, the contract should say:

1. What is measured. “Availability” of what: the whole platform, one module, the ability to log in? Define the event that counts as a failure.
2. The target. A number, with the unit: a percentage, minutes, hours, a count.
3. The measurement period. Per month is most common. A yearly figure hides bad months.
4. The data source. Whose monitoring tool or ticket system counts, and whether the customer can see the raw data.
5. The exclusions. Scheduled maintenance, the customer’s own systems, force majeure events. Keep the list short and specific.
6. Reporting. A monthly report with the result for every service level, delivered by a fixed date.
7. The consequence. What a miss costs and what the provider has to do about it.

Write the targets so a third person could check them from the data alone. “Quantifiable, measurable and objective” is the test, as one of the sample clauses above puts it.

What happens when a service level is missed

Contracts usually stack several remedies:

• Service credits. A reduction of the next invoice, often a percentage of the monthly fee per missed service level. Most contracts cap the total credits per month, sometimes called the amount at risk.
• Earn-back. The provider can win a credit back by beating the target in the following months.
• Root cause analysis and remediation plan. The provider has to find out why the miss happened and fix it, by a deadline.
• Termination for chronic failure. If the same service level is missed several times within a set period, the customer may terminate without waiting for a larger breach.
• Other remedies. The contract should say whether service credits are the only remedy or whether the customer can still claim damages. Providers prefer “sole and exclusive remedy”. Customers usually push back.

If you are the customer, check that the credits are large enough to matter. A credit of 1% of a monthly fee will not change how a provider staffs its support desk.

Service levels clause example

Keeping track of service levels after signing

Service levels only help if someone checks them each month and raises a miss in time. In fynk, you save the targets, the credit percentage and the review date as metadata on each supplier contract, so they can be filtered and reported on across every contract. A task with a reminder asks the contract owner to check the monthly report, and another one comes up before the annual SLA review, while there is still time to renegotiate targets.

Which contracts include service levels?

Software as a service and cloud agreements, IT managed services and outsourcing contracts, hosting and data center agreements, customer service and call center outsourcing, logistics and facilities management contracts. These free templates include service levels:

Related clauses

• Service credits Service credits are compensation mechanisms outlined in a contract where the service provider offers credit to the customer for any failure to meet agreed-upon performance standards or service levels. These credits serve as a financial remedy, incentivizing the provider to maintain high-quality service while acknowledging and compensating for any deficiencies.
• Standard of performance The "Standard of Performance" clause specifies the expected level of quality and diligence required from a party in fulfilling their contractual obligations. It typically outlines the criteria, industry standards, or benchmarks against which performance will be measured to ensure compliance and satisfactory completion of tasks.
• Interruption of services The "Interruption of Services" clause outlines the conditions and responsibilities associated with temporary or permanent disruptions in the provision of services outlined in a contract. It typically includes information on notification requirements, potential remedies, and liability limitations for the parties involved when service interruptions occur.
• scope of work The scope of work clause defines the detailed tasks, deliverables, and responsibilities that are required for a project, ensuring all parties have a clear understanding of what is expected. It outlines the project's boundaries and limitations to prevent scope creep and manage expectations effectively.
• Cure period A cure period clause provides a specific timeframe within which a party in breach of a contract can rectify or "cure" the breach to avoid further legal consequences, such as termination of the agreement. This clause offers a structured opportunity to remedy non-compliance, thereby maintaining the contractual relationship and reducing potential disputes.
• Liquidated damages Liquidated damages are a predetermined sum agreed upon by the parties to a contract, payable in the event of a specified breach, serving as compensation for losses that are difficult to quantify. This clause aims to provide certainty and avoid lengthy legal disputes over actual damages while discouraging breach of contract.

Frequently asked questions

• What is the difference between an SLA and a KPI?

  An SLA (service level) is a binding target with a consequence, such as a service credit, when it is missed. A KPI is a measure the parties track to manage the service, usually without a financial consequence.

• What are common SLA metrics?

  Availability or uptime, response time, resolution time, on-time delivery, accuracy and customer satisfaction. Which ones fit depends on the service being bought.

• What is a good SLA percentage for uptime?

  For business software, 99.9% per month is a common commitment. That allows roughly 43 minutes of unplanned downtime in a 30-day month. Higher commitments, such as 99.99%, usually cost more.

• What happens if a service level is not met?

  Whatever the contract says. Usually the customer receives a service credit, the provider has to find and fix the cause, and repeated misses give the customer a right to terminate.

• Should service levels be in the main contract or a separate SLA?

  Either works. A separate schedule or SLA is easier to update when targets change, while the main contract keeps the legal terms, such as liability and termination.