What is a service level agreement and how to create one

A service level agreement (SLA) is a formal contract defining the expected service level between a provider and a customer. It outlines specific performance standards, responsibilities, and SLA metrics so both sides know exactly what’s being delivered and when.

SLAs are used across industries to manage customer expectations, reduce risk, and hold vendors accountable. However, they are not only used for tech purposes. They are also quite essential in finance, procurement, and operations.

Without clear SLAs, service delivery breaks down. Teams struggle to measure vendor performance, manage escalations, or ensure compliance. With them, businesses gain transparency, protect budgets, and improve outcomes.

Who uses service-level agreements?

SLAs are used by teams that rely on others internally or externally to deliver consistent results. They remove guesswork, define responsibilities, and set clear expectations so work does not fall through the cracks.

• IT teams: Use SLAs to define service standards for system uptime, helpdesk support, incident response, and software availability. These agreements ensure that end-users across the business get timely technical support and reduce downtime that can disrupt operations.
• Finance departments: Set SLAs with external vendors like accounting firms, payroll providers, and financial software platforms. These agreements help protect month-end close timelines, ensure accurate transaction processing, and maintain compliance with internal controls and regulatory standards.
• Procurement and legal teams: Use SLAs to formalize vendor expectations around deliverables, timelines, pricing, and dispute resolution. With an SLA in place, both sides know what’s expected, reducing the chance of vendor contract breaches or project delays.
• Customer service teams: Create SLAs that define how long it should take to respond to and resolve customer inquiries. These targets help teams stay consistent, prioritize high-impact issues, and track performance levels across support channels.
• Operations and logistics teams: Use SLAs with shipping partners, warehouse providers, and third-party manufacturers. These agreements cover things like delivery timeframes, inventory accuracy, and order processing, helping businesses avoid costly delays and maintain service reliability.
• Internal departments: Even team members use SLAs to define service expectations. For example, HR might agree on onboarding timelines with IT, or finance might set expectations with sales for expense submission. These internal SLAs keep workflows efficient and reduce last-minute blockers.

Key components every SLA should include

The key components of an SLA are the foundational building blocks that define how the agreement works in practice. They lay out what’s being delivered, how success is measured, and what happens when expectations are unmet. Without these core elements, an SLA is just a vague promise.

Service scope and deliverables

This section outlines the specific services that are being provided under the agreement. It defines the boundaries of the relationship, including what’s included, what’s excluded, and where responsibilities start and stop. A well-defined scope helps both sides stay aligned and prevents scope creep.

For example, if you're outsourcing customer experience and support, the SLA should specify which channels are covered (email, chat, phone), what hours support is available, and what types of issues the team will handle. Anything not covered by the agreement should be clearly stated to avoid assumptions later.

Performance metrics and service levels

SLAs need measurable outcomes. This section defines how success will be tracked and what level of performance is expected. Common metrics include response times, resolution times, system uptime, data accuracy, and service availability.

Each target should be specific, quantifiable, and tied to a timeframe. These benchmarks help both parties monitor performance and business objectives, while ensuring service expectations are consistently met.

Most organizations say that clear metrics are the most effective way to ensure SLA compliance. Without them, accountability quickly breaks down.

Roles and responsibilities

The SLA must outline each party's responsibilities to avoid confusion during delivery or problem-solving. This includes both the service provider's and the client's responsibilities to support service delivery.

For example, the provider might commit to resolving issues within a certain timeframe, while the client may need to grant timely access to systems or respond to requests within one business day. Clearly assigning roles helps prevent bottlenecks and keeps accountability balanced.

Issue escalation and resolution process

When something goes wrong, the SLA should provide a structured process for handling it. This section explains how incidents are reported, who gets notified, how issues are prioritized, and what steps are taken if problems are not resolved within the agreed amount of time.

Escalation procedures should include contacts at each level, with clear guidance on when and how to escalate. A documented resolution process helps teams react quickly and reduces delays when problems affect operations or customers.

Monitoring and reporting

You can’t manage what you do not measure. This part of the SLA defines how performance data will be collected, monitored, and shared. It specifies what metrics will be reported, how often reports will be delivered, and who is responsible for reviewing them.

Reports could include uptime logs, service ticket summaries, or trend analysis. Visibility into performance allows both sides to spot issues early, address recurring problems, and maintain accountability throughout the contract term.

One of the hardest parts of managing SLAs is tracking whether vendors are delivering what they promised. Ramp helps simplify this by giving teams access to real-time transaction data and contract metadata for every vendor in one place.

You can see how much you are spending, what was agreed to, and whether services are being used as expected. This makes it easier to hold providers accountable to SLA terms. Using Ramp, Alexandra Lozano Immigration Law streamlined their reporting process, saving over 75 hours on expense reporting alone.

Review and revision schedule

SLAs should evolve as services, tools, or business needs evolve. This section outlines how often the agreement will be reviewed and under what circumstances it can be updated.

A common cadence is quarterly or biannually, though some teams review SLAs after major service changes or missed performance targets. Regular reviews ensure the agreement stays aligned with current operations and continues to reflect realistic, enforceable standards.

Penalties or incentives

Some agreements include penalties for underperformance or incentives for exceeding targets to ensure the SLA is taken seriously. Penalties might include service credits, fee reductions, or the right to terminate the vendor contract. Incentives could take the form of bonuses or contract extensions for consistently high performance.

While not every SLA includes this, it’s especially useful when service delivery directly impacts business continuity or customer satisfaction. This section adds structure to consequences, so expectations are clear and fair from the start.

Different types of SLAs

Not all service agreements work the same way. Different teams, vendors, and business models require different detail, scope, and accountability levels. That’s why SLAs come in more than one format. Your SLA type depends on who’s involved, what’s being delivered, and how performance is measured.

Customer-based SLAs

A customer-based SLA is a personalized agreement between a service provider and a specific client. It outlines the exact services to be delivered, the performance standards expected, and the terms that apply only to that customer’s account.

This type of SLA is ideal when clients have unique needs, service requirements, or business priorities. Instead of applying general terms across all customers, the agreement is customized to reflect what matters most to that individual relationship.

For example, a software provider might offer one client 24/7 support with a one-hour response time while another client receives standard business-hour support. Both use the same platform, but their SLAs are different because their business needs vary.

Customer-based SLAs help build stronger client relationships. They show that the provider understands the client’s operations and is committed to delivering consistent, accountable service.

This approach is common in B2B service contract management, where long-term relationships and performance guarantees directly impact retention and growth. In fact, most B2B customers say a provider’s ability to tailor services to their needs directly influences renewal decisions. When businesses take the time to customize SLAs, they improve client satisfaction—and long-term retention.

Internal SLAs

Internal SLAs define service expectations between teams within the same organization. They set clear standards for how one department supports another. Unlike customer-facing SLAs, internal agreements focus on improving operational efficiency and cross-team accountability. They help eliminate bottlenecks, reduce friction, and keep business processes running smoothly.

For example, an internal SLA between IT service providers and HR might commit to provisioning laptops within two business days of a new hire request. If that does not happen, the delay impacts onboarding and employee experience.

Internal SLAs also play a critical role in supporting contract compliance. When finance teams need timely data from operations or sales, a formal agreement helps ensure critical inputs arrive on schedule and in the correct format.

Multi-level SLAs

Multi-level SLAs are structured agreements that support multiple users or services under one contract. Instead of applying a single standard across the board, they layer different commitments based on roles, departments, or types of services.

This format is useful when one agreement needs to cover multiple business units, regions, or customer tiers. For example, a company might have a base SLA for all users, with additional terms for premium clients or specific departments like finance or legal.

A multi-level SLA usually includes three layers:

• Corporate-level: Applies to everyone and covers core services like uptime or data security measures.
• Customer-level: Customizes expectations based on who’s using the service.
• Service-level: Sets standards for individual services or functions.

This layered approach offers flexibility without sacrificing consistency. It allows teams to tailor performance targets where needed without rewriting the entire agreement.

How to create an effective SLA

Creating an effective SLA takes anywhere from a few days to several weeks, depending on the complexity of the service and the number of stakeholders involved. Rushing the process usually leads to vague terms, missed expectations, or gaps in accountability.

• Step 1: Define the scope of services clearly. Start by listing exactly what’s included in the service and what isn’t. Be specific about deliverables, support channels, and limitations. This prevents confusion later and keeps both sides aligned on what’s being delivered.
• Step 2: Set measurable performance standards. Identify the metrics that matter. Use targets like response times, resolution windows, uptime percentages, or error rates. Each metric should be easy to track, relevant to the service, and tied to a clear standard. For example, “95% of support tickets are resolved within 24 hours.”
• Step 3: Identify responsibilities on both sides. An SLA is a two-way agreement. Outline what the service provider will deliver and what the client or internal team must provide to enable success. This might include access to systems, timely approvals, or designated points of contact.
• Step 4: Define escalation paths and resolution timelines. Things will go wrong. What matters is how quickly they are resolved. Create a clear process for raising and escalating issues. Include who’s responsible for each step and the resolution time frame based on the issue's severity.
• Step 5: Establish how performance will be monitored. Decide how data will be collected and reported. Whether it's a dashboard, weekly summary, or monthly review, make sure both sides know how progress will be tracked and shared. Transparency builds trust and drives accountability.
• Step 6: Schedule regular SLA reviews. Services change, and so should your SLA. Set a review cadence, either quarterly or biannually, to ensure the agreement stays aligned with current needs. Use review meetings to adjust metrics, add services, or fix recurring issues.
• Step 7: Include penalties or remedies for non-compliance. Learn what a service level agreement (SLA) is, why it matters, and how to create one that aligns your business’s performance, accountability, and outcomes. If performance slips, the SLA should define what happens next. This might mean service credits, fee adjustments, or escalation to legal review. The goal is protection. Clear consequences prevent repeat issues.
• Step 8: Keep the language simple and accessible. Avoid legal jargon or technical terms that confuse stakeholders. Everyone, from executives to frontline staff, should be able to read and understand the agreement. A well-written SLA is easy to follow, easy to reference, and easy to enforce.

Most teams do not have a single source of truth for vendor performance. Ramp brings together contract data, service usage insights, and spending history to help teams evaluate vendors' performance. These insights make SLA conversations more grounded and ensure you're setting targets based on real outcomes, not assumptions.

How SLAs fit into your finance and operations strategy

SLAs are a core part of how businesses manage risk, performance, and accountability. When done right, they align teams, improve service delivery, and give leaders the visibility they need to make better decisions.

For finance and operations teams, SLAs bring structure to vendor relationships, protect timelines, and prevent unnecessary costs. They support everything from payment processing to compliance reporting, where delays or errors can have real financial consequences.

And the impact is measurable. Companies with formal SLA processes report a significant improvement in service reliability across functions. That means fewer missed deadlines, fewer escalations, and more predictable outcomes.

If you are scaling operations, managing vendors, or building out shared services, SLAs should be part of your strategy. They do not just define quality of service but help drive performance.

Strong SLAs require clear visibility into vendor commitments, contract terms, and service performance. Ramp gives finance and operations teams the tools to manage all of that in one place. From automated contract extraction to price benchmarking and usage tracking, Ramp helps teams build better SLAs and enforce them with less manual effort.