The True Cost of Downtime
Business downtime is an owner’s nightmare. Not only is it disruptive, but it’s also costly. But what is the true cost of downtime?
Whenever we talk to business owners about their worst days in the business, it often involves downtime. Imagine spending hours, days, and even weeks with nothing done because something is broken or is not working as intended.
But to get a better understanding of the effect of IT downtime on a business, you should know how to calculate the cost of your business being down.
Back in March 2015, Apple Store was down by 12 hours and it cost them $25 million
The following year in August, Delta Airlines was hit by a 5-hour power outage in one of their operation centers resulting in an estimated loss of $150 million and 2,000 canceled flights.
In March 2019, Facebook lost an estimated $90 million because they were down for around 14 hours.
Sounds scary right? Of course, not all businesses are expected to lose tens of millions every time they experience downtime. But any business, big or small, should know how to calculate the cost of downtime. But before we go and do that, let’s try to describe what downtime is and how it affects your business.
What is Downtime?
The simplest definition for downtime is “a time when a machine, especially a computer, is out of action or unavailable to use”. This definition perfectly encapsulates what happens in a downtime. In downtime, no work is done and people end up just waiting for everything to work again. In the case of an IT Downtime, this can be due to devices not working properly, cloud apps and systems not working, or the network causing issues. An IT downtime can be one or a combination of all these things.
What Is the Cost of Downtime?
Whenever people think of downtime, they think all about the money lost when your business is not operating. While that is the first thing that should be considered, that’s not the end. But it does help if you get a good idea on what’s the effect of downtime in a financial sense.
To get a good idea of how much money you lost during your downtime, you have to think of two things – productivity cost and revenue loss.
Productivity cost refers to the money you lost by keeping employees on the clock while there is no production going on. The formula is quite simple.
Productivity cost = E x % x C x D
If you have 100 employees who you pay $10 an hour and 80% of them are affected by a 48-hour downtime, the equation will look like this.
100 x 80% x 10 x 48 = $38,400
This means that during the 5-hour downtime, you lost $2500 in the form of salaries to employees who didn’t work because of the downtime.
The revenue loss, on the other hand, refers to how much revenue you could’ve earned during the downtime. The equation is as follows:
Revenue loss = (GR/TH) x % x D
To calculate the revenue loss, you take your gross annual revenue and divide it by the total annual business hours to get your gross hourly revenue. You then multiply it by the impact of the downtime and the number of hours.
So if your business earns two million a year gross with total annual business hours of 1,768 got hit by a 48-hour downtime affecting 80% of the business you will get this equation:
(2,000,000/1768) x 80% x 48 = $43,439
You will then add these two to get the total cost of your downtime which sits at around $81,839. This number might not be as big compared to what Facebook lost but if $81,839 is still a big amount of money especially for a business that’s still scaling.
Intangible Cost of Downtimes
If you thought the damage of a downtime ended with $81,839 then you are wrong. See, there are two facets of the cost of downtime – the tangible and intangible damage. The tangible damage refers to any expenses incurred or lost due to the downtime. So the revenue loss and productivity cost along with the cost of getting everything back online can be considered tangible damage.
The intangible, however, can’t easily be quantified by numbers. Here are a couple of negative effects of downtimes that are considered intangible.
Nobody wants to work with an unreliable business. When a part of your business goes down, so does the trust of your customers. For certain sectors, a few hours of downtime can result in customers leaving in droves. This becomes even worse when you suffer from frequent downtime. Just imagine wanting to check the status of an item you ordered and you can’t even access the app. When these things happen, you should try your best to win your customers back or you lose them completely.
Imagine finishing up a day-long report on your workstation when all of a sudden your machine becomes unresponsive. Or maybe coming up with the perfect email detailing your plan for a marketing strategy and you are told the next day that the emails weren’t sent because of a problem with the network. Frustrating, right? While employees can joke around that downtimes are good because they are paid to do nothing, it can affect employee morale if downtimes happen often. You might end up with unproductive employees who only wait for the next downtime to happen.
Recovery and Additional Protection
We all know that when something breaks or stops working you don’t just wait for it to magically start working again, right? You need to have the right people to help you fix the problem and undo any damage.
If you are working with a good IT team, part of their job is to create backups and initiate a data recovery process when downtimes occur. This is to ensure that minimal data is lost and people can continue working.
A lot of downtimes can be prevented if you are working with an excellent IT team. They can identify possible issues even before they happen and can suggest failsafe so you can prevent or mitigate future downtimes.
If you are looking for an IT partner who can help you with all your IT needs – including the prevention and mitigation of downtimes then you can trust Mathe. Mathe is an IT solutions company committed to helping businesses and organizations around New Jersey and across the country achieve the maximum potential. Call us today and let us know how we can help you address your IT downtime problems.
With over 35 years in the business of supporting and implementing technology for the SME market, and 6 years previously in Corporate IT and Voice. I have seen a great deal of change. The only common thread is I have always focused on the Business Wise application of Technology. We always try to look 5 years ahead of the current technology to make sure our clients are on the right track to meet current and future needs.