7 min read

What Is SLA? What You Need to Understand about Service Level Agreement

🕒 August 7, 2022 by Reham Omar - 7 min read

Starting a business has become quick and easy in today’s technology-driven, fast-paced life. The retail market has moved its focus from brick-and-mortar stores to start-your-business-from-anywhere mode. The eCommerce platforms have enabled entrepreneurs to start their businesses online and capture the world as their customers. With amazing logistic services, physical barriers seem to have diminished for businesses as they look for new markets through the eCommerce platforms.

In this competitive era, when starting a business is so easy, what does it take for a business to succeed? A great product/service, a good rapport with the customer, amazing after-sales service, and delivering the promised product/service on time without compromising quality. As a customer, none of us want to wait for more than the time assured, whether for an ice cream cone or an expensive ride. Until, of course, the situations are not in our control. A business relies on its shipping partners to fulfil its delivery promises. 

Partnering with a Third-Party Logistics (3PL) company helps a business deliver its products across a country and even the world. To ensure that the products are delivered on time, under the right conditions, and comply with crucial terms for success, businesses rely on a well-framed Service Level Agreement (SLA).

What Is An SLA?

A Service Level Agreement or SLA between any two parties defines the expectation of deliverables between the two in a given time frame. An SLA is a formal contract that defines and establishes the detailed deliverables one party agrees to provide to another. Generally, such agreements exist between a business and its customers or one division that delivers frequent service to another division within that business.

So as a customer, when you shop from an online platform or business, the SLA for you is the product’s delivery time as specified by the platform (say seven business days). Now, that business engages with a shipping partner to deliver the product to the customer’s doorstep. The shipping partner takes five days to deliver a product anywhere in the country. This 5-day is the SLA between the business and the shipping partner. And for the product to actually get going by the shipping partner, it must be ready to ship two days after placing the order. This 2-day is the SLA for the business towards the shipping partner.

Types of SLA

Basically, there are three types of SLA: Customer SLA, Internal SLA, and Multilevel SLA.

To understand these, let’s take the example of an online business that sells paintings by different artists.

Customer SLA

As the name suggests, a Customer SLA is an agreement by a service provider to deliver a certain service to a particular customer. In our example, the artists must supply the painting either at a regular time (say every five days) or within two days once an order is placed. This would serve as the Customer SLA or External SLA for the business.

Internal SLA

Internal SLA is for departments within the business. Say, once the business receives a painting, an internal department must cure it in 1 day and then send it to the packaging department for shipping. This serves as the internal SLA between the curing and the packaging departments.

Multilevel SLA

Multilevel SLA divides the complete agreement from business to end customer into various levels. For the painting to reach from artist to customer, it must go through the artist, curing, packaging, shipping, and then to the customer. This process must be completed within a fixed time, say seven days, with each department allotted a particular number of days, say 2, 1, 1, and 3 days, respectively.

Key Components Of An SLA In Shipping

The industry to which the participating parties belong determines the components of an SLA. For the eCommerce industry, some key components of a service-level agreement would be:

Overview of agreement

Generally, the first section sets the basics of the agreement, mentioning the parties involved, the commencement date, and an introduction to services provided.

Services description

A detailed description of every service on offer, all the possible circumstances, along with the turnaround time, is included in this section. While defining the services, it must be mentioned how they will be delivered, the hours of operation, dependencies and co-dependencies, process outline, and the technologies and tools used to deliver them.


 A specific mention of everything the service agreement does not cover exclusively, so there are no confusion and assumptions by either party.

Service performance

Performance measurement metrics must be defined and agreed upon by all the parties to measure the service level provided.


The compensation or payment to be drawn in case of non-adherence to SLA should be clearly defined.


Identify and define the parties bound by the agreement. It also describes their responsibilities.

Business process continuity plan

A disaster recovery plan should be in place along with risk management processes.

Periodic review

The SLA and performance indicators should be reviewed at regular intervals to incorporate changes, as necessary, through a well-defined process.

Termination process

It includes the circumstances indicating when, why, and how the SLA will expire or be terminated by either of the parties. It should also clearly mention the notice period.


All the stakeholders from the parties involved must sign off the document indicating their approval of the terms and conditions.

Importance Of An SLA In Shipping For eCommerce

The Service Level Agreement is also known as Days-To-Ship (DTS) or Ship-On-Time (SOT) in the eCommerce and shipping industry. Irrespective of the terminology, they all point to the fact that the seller must deliver an item to the customer within the stipulated time. The SLA brings entrepreneurs and the online marketplace of their choice on the same page.

A well-defined SLA helps a business:

Minimize order cancellations

An SLA gives you a rigid time frame for your product to reach your customer. Knowing the certainty of when they’ll receive the product encourages customers to complete their transaction and not cancel it at the last moment.

Increase loyalty

Customers love to receive their packages on time (or even earlier). A great service results in good ratings online and regular orders turning customers into loyal ones and even getting more recommendations.

Manage expectations

An SLA helps take into account all the possible situations, the process to handle them, and the possible consequences. This helps straighten the expectations at the customer, seller, and logistic ends.

How Do You Create Your SLA?

Now, there’s no one recipe to churn up a perfect Service Level Agreement. However, there are certain factors and industry best practices that a business needs to keep in mind when drafting the SLA. One should consider:

Define realistic goals

Your SLAs should be based on ground reality and not on what the competition is delivering. Access what will serve as a reasonable timeline without stretching out the parties involved.

Keep everyone on the same page

No single party involved should feel like they can’t meet their expectations. Discuss potential issues and make possible changes proactively, rather than facing the heat and redoing things.

Get specific

Being specific about what is and what is not covered saves every party from confusion, ambiguity, awkward situations, and shrugging responsibilities.

Choose measurable metrics

Set goals and metrics that can be easily measured, compared, reviewed, and optimised for better performance.

Expect the unexpected

One can’t predict the future but can consider certain unexpected events and define some basic conditions that need to be met during such events.

Final Thoughts

A Service Level Agreement can become a creditable tool to track your business, its progress, and your equation with the shipping provider. Ensure that you use it efficiently!

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