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What is the Cost of Downtime?
According to Gartner, the average cost of network downtime is around $5,600 per minute. However, this number is just an average which is significantly skewed towards larger companies. For small businesses, that number drops to the lower-but-still-significant tune of $137 to $427 per minute. And where your company falls on this very wide spectrum depends on a number of factors, including industry vertical, organization size, and business model.
Beyond the monetary costs, IT downtime can wear on your business’s productivity levels. Every time you get interrupted, it takes on average 23 minutes to get refocused on your prior task. Network failures and power outages aren’t the only culprits when it comes to downtime either. Other top factors include:
- Outdated Software and Hardware
- Hurricanes and Floods
- Human Error
Global e-commerce mogul, Amazon suffered an outage in 2013. The company not only suffered Lost connectivity and falling productivity. With the company’s website offline and its mobile app unreactive, customers could not make purchases. The 49-minute outage reportedly cost Amazon.com $5 million in sales revenue alone, not to mention the cost of working hours lost for its employees.
Northrop Grumman, an American global aerospace and defense technology company, was also a part of a public relations outrage when their system went down for a week. The outage affected several state agencies in Virginia. In addition to damaging the reputation of Northrop Grumman, the extended downtime resulted in a $5 million payment to the Commonwealth of Virginia.
More recently, July 2020 saw news channels flooded with reports on GPS titan Garmin coming under attack by hackers who allegedly demanded a pay-up of $10 million to end the company’s system outages. While the ransom demand is an added liability, the company is still recovering from the fallout of the devastating that has crippled its website, disrupted customer support, disabled apps, and paused communications.
How do you know where you stand when it comes to downtime costs?
A simple method to calculate the effect on your business:
IT Downtime Formula
Cost of Downtime (per hour) = Lost Revenue + Lost Productivity + Recovery Costs + Intangible Costs
The very first step would be to calculate the amount of revenue your business has generated/hour. In other words, it will be equivalent to revenue per week/40 hours. Additionally, a significant component to find out your business’s lost revenue is your dependency on network uptime. Uptime is the percentage of time your systems are up and operational online. For example, if you are an e-commerce store and solely sell online, you are entirely dependent on the internet to generate revenue. You will need to estimate the percentage amount of your revenue that is dependent on uptime.
Lost Revenue = Revenue/hr x downtime(hrs) x uptime (%).
For Example: If the revenue is $3,000/hr and your network was down for 2 hours, and the uptime percentage is 30% my lost revenue would equal: $1,800/hr
With servers down, employees are unable to perform their jobs. However, payroll is a fixed cost and does not depend on actual work performed. Therefore, the cost is incurred even when the networks are down. So, to calculate lost productivity, you must first determine each employee’s salary/hr. Then, estimate the percentage of productivity that is dependent on uptime, and this could be different across employees. (Uptime is simply the time or percentage the site is up and operational) This percentage is known as the Utilization Percentage.
Lost Productivity = Employee Salary/hr x Utilization % x Number of employees
(with same Utilization %, it may be the same across a single department)
The costs incurred to fix the issue includes, but are not limited to:
- Repair services
- Replacement parts
- Lost data recovery
- Other costs due to loss of data
These may not be as tangible as revenue and productivity costs, but they are equally important when deducing your real downtime costs.
It is the type of cost that might affect your business from a long-term perspective. These costs take place whenever there is network downtime which eventually damages the reputation of your brand. This will eventually affect the business that has a heavy dependency on network performance or network availability. It also includes the costs that can’t be measured to find out the total network downtime cost using the given formula for a better understanding of consequences.
Once you have calculated each variable element, you can now plug them into the main formula and tally up your total downtime cost.
Does the number surprise you? If you are ready to end the risk of downtime, contact us now to find out how our proactive IT solutions can minimize that risk and fit seamlessly into your business.