Methods and systems for a networked storage system is provided. One method includes transforming by a processor, performance parameters associated with storage volumes of a storage system for representing each storage volume as a data point in a parametric space; generating by the processor, a plurality of bins in the parametric space using the transformed performance parameters; adjusting by the processor, bin boundaries for the plurality of bins for defining a plurality of service levels for the storage system based on the performance parameters; and using the defined plurality of service levels for operating the storage system.