Business software glossary
SLA
Service level agreement
An SLA (service level agreement) is the part of a service contract that sets measurable standards, such as response time, resolution time or uptime, and what happens if they are missed. It turns a general promise of good service into targets both sides can check.
Why it matters to your business
If you sell annual maintenance contracts, IT support, facility services or any retainer, the SLA is what the customer is really buying. A clear SLA protects you too: it defines what “urgent” means, what is outside scope and what the most you owe is when things go wrong. Without one, every missed call becomes an argument about expectations.
How it works
Take an AMC for 20 air conditioners at an office, billed at ₹1,20,000 a year plus GST, in quarterly instalments of ₹30,000. The SLA might say:
- Breakdown calls are answered within 4 working hours.
- Faults are fixed within 2 working days, or a standby unit is provided.
- Each unit gets two preventive visits a year.
- For each breakdown fixed late, the customer gets a service credit of 2% of that quarter’s fee, capped at 10%.
If three breakdowns are fixed late in a quarter, the credit is 6% of ₹30,000, which is ₹1,800, adjusted against the next invoice. Both sides can check the figure from the call records.
These targets are an example for illustration; set yours from what your team can reliably deliver.
Common mistakes
- Targets you cannot measure. “Prompt service” cannot be checked. “Response within 4 working hours” can.
- No clock definition. State whether hours are calendar or working hours, and when the clock starts and stops, such as while waiting for the customer’s approval.
- Unlimited penalties. Cap service credits so a bad month cannot wipe out the contract’s value.
- Contracts that renew silently or lapse. Track end dates and start renewal talks well before them, so service and billing do not stop without notice.
Questions about SLA
What is the difference between a contract and an SLA?
The contract covers the whole relationship, such as scope, price, duration and liability. The SLA is the measurable part of it, setting how quickly and how well the service must be delivered and what happens if it is not.
What is a service credit?
A reduction in the fee when the provider misses an SLA target, such as a percentage off the next invoice. It is usually capped, and it is often issued as a credit note against the service invoice.
What should an AMC's SLA cover?
How the customer reports a fault, how soon you respond, how soon you fix it, preventive visits in the year, which parts are included, working hours and holidays, and the service credit if you miss a target.
How do I measure SLA performance?
Record when each request came in, when you responded and when it was resolved, then compare each with the target. Report the share of requests met each month.
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