How many hours of network downtime did your business experience this past year? The average business suffers from about 14 hours of IT downtime per year. Regardless of whether you experienced more or less, I’m positive that there was a negative financial impact associated with each downtime event.
According to a survey by CA Technologies, small enterprises lost, on average, more than $55,000 in revenue due to IT failures each year, while midsize companies lost more than $91,000 and large companies lost more than $1,000,000.
Those numbers may shock you, but let’s think this through. How much are you paying idle employees? Did you pay overtime to make up for lost productivity? How much revenue did you lose that could have been generated? Did you incur late delivery surcharges? Did a loss of customer goodwill erode your ongoing revenue stream? Did you need to plan and execute campaigns to explain and apologize for the outage?
Costs incurred from network downtime
Here’s a complete list to help you work through what downtime costs your business:
- All internal business processes will cease; inventory tracking/ERP, billing, HR, intranet, etc.
- Lost sales revenue; sales will have no access to customer or product data
- Lost employee productivity; no systems to keep them working
- No communication; no email
- Cost to restore IT systems
- Materials lost/disposal and cleanup costs
- Financial impact of customer dissatisfaction
- Contract penalties
- Compliance violations, if applicable
- Upstream and downstream supply-chain ripple effects
- IT and employee recovery costs
- Potential litigation/loss of stock value
- Missed deadlines that result in employee overtime
- Priority shipping charges
How to calculate how much downtime costs your business:
We created a kick ass downtime calculator to make your life easy. It gives you the ability to easily play with the various inputs so you can consider the costs of various downtime events.
We included two additional calculations below to help your determine the cost of labor & potential revenue losses.
How to calculate the average labor cost of a downtime event:
LABOR COST = P x E x R x H
P = number of people affected
E = average percentage they are affected
R = average employee cost per hour
H = number of hours of outage
How to calculate potential revenue losses during a downtime event
It is difficult to calculate this, especially the more intangible costs like customer dissatisfaction and loyalty. To keep things simple, we suggest the following calculation:
LOST REVENUE = (GR/TH) x I x H
GR = gross yearly revenue
TH = total yearly business hours
I = percentage impact (A high percentage would mean you can’t complete any transactions, will loose clients, and have a PR nightmare)
H = number of hours of outage
Finally, to calculate the expected annual cost, multiply this number by the number of expected annual hours of outage.
So, please, when considering the cost of IT services, also think about the impact of potential downtime when faced with the choice of going with a solution that looks like it will save a few bucks but might not completely solve all your needs or suffer reliability issues over time.