What Does Downtime Cost?

Use your own figures to see how it affects your bottom line

We all know that unplanned downtime can be costly, but how much damage can it really do? Each year, numerous organizations publish facts and figures on what the average downtime costs are for different industries. But what about your business? What are the downtime costs based on how your run your company?

To see how much downtime costs your business, simply fill out the form to the right and we'll generate a detailed report for you. If you want to know more about how downtime costs are calculated, keep reading ...

How Is The Cost Of Downtime Calculated?

The calculator on the side of this page has taken the manual work out of trying to determine what your true downtime costs are. However, we know that some business owners are still curious about HOW we arrive at the results. With a number of factors to consider when calculating downtime costs, we chose to split our formula into two main areas: Lost Productivity and Lost Revenue.

#1: The Cost Of Lost Productivity

When your systems experience a disruption, your employee productivity suffers and depending on the nature of the system, the magnitude of the impact will vary. For every minute that your systems are unavailable, you are paying your employees to do nothing instead of working towards generating revenue for your business.

To determine what your Downtime Labor Cost is, we use the following formula:

Downtime Labor Cost = N x I x D x C

N = The Number Of People Affected

I = The Percentage Of Productivity Impacted

D = The Duration Of The Outage

C = The Cost Per Employee Per Hour With Overhead Included

For Example:

ABC Widget company employs 100 people and experiences a 2-hour outage of a server which contains their main sales application, SellWell. This application is used by 30 sales team members to take incoming orders from clients and prospects. Without SellWell, the sales team can only perform about 25% of their work and based on current salary, bonus and benefits packages, the average cost for each of these 30 employees is approximately $35 an hour

ABC Widget Company Downtime Costs

N = 30 (Only the Sales Team is affected)

I = 75% (They can still do some work related items)

D = 2 (Total server downtime)

C = $35 (Per hour cost per employee)

Total Downtime Cost:
30 x 75% x 2 x $35 = $1,575

That's a cost of $787 per hour of downtime coming off their bottom line!

#2: The Cost Of Lost Revenue

When your systems are experiencing a disruption, your staff may not be able to generate revenue. While some clients may understand the situation and return at a later time to place their order, new customers may not be as forgiving - turning to your competitor to fulfill their order. Undoubtedly, there will be some lost opportunities ...

To determine what your Lost Revenue Cost is, we use the following formula:

Lost Revenue Cost = A / T * D

A = Annual Company Revenue

T = Total Business Hours Per Year

D = The Duration Of The Outage

For Example:

ABC Widget receives $5 million in annual revenue and their customers conduct business between 8AM and 5PM, Monday through Friday, all year long

ABC Widget Company Lost Revenue Costs

A = $5,000,000 (All of their annual sales)

T = 8 (hrs/day) * 5 (days/week) * 52 (weeks/year) = 2,080

D = 2 (Total server downtime)

Total Lost Revenue Cost:
$5,000,000 / 2,080 x 2 = $4,807

That's a cost of $2,403 per hour of downtime coming off their bottom line!

Other Costs To Consider

The two items above are the only ones we calculate for you but there are other, harder to quantify, factors that you still want to consider:

Service Level Agreement Penalties

Depending upon the nature of the business the SLAs can be very aggressive. Where large capital costs are riding on timely delivery, such as in airlines or a large manufacturer, any hiccup can cost the parent dearly and it's not uncommon for these vendor-supplier relationships to be tied with six figure SLA penalties

Lost Client Lifetime Revenue Potential

We have all done this at some point – we went to our trusted vendor, saw their portal was down, went elsewhere and made the purchase. And if the experience was good, we take our loyalties and our wallet to this new vendor. As discussed above, there will be a certain number of customers who will go to a competitor and make a purchase and while most will come back to you there will be some that won’t. You would have permanently lost a customer and the lifetime stream of revenue that he would have generated for you!

Ruined Company Reputation

How likely would you be to fly an airline that is always late, that repeatedly causes you to miss your connections or cuts into your family time because of tardy arrivals? Not very likely I would assume. An airline that has built a reputation of being late all the time will have a harder time attracting customers than one who has a stellar reputation. The hardship experienced in the form of lower ticket fares, better rewards programs or even better baggage allowance.

If the website for ABC Widget Company is always down, the customers will slowly desert them and they will let their colleagues in other companies know. These customers will look past you and will make it much harder for you to attract them, because your former customers have built your reputation.

Downtime Is Serious Business!

As vendors with a strong reputation continue to charge a brand premium, ones with a poor one will continue to find themselves ridiculed in the social media and their brand shredded as they watch helplessly.

You are a service provider and whether your customers are internal or external, they expect their services to be available when they need them. It is their business that they trust you with, do not let them down. They cannot afford it and neither can you!