Feb
21

How Much Does Downtime Cost a Business? Here’s How to Find the Real Number

How Much Does Downtime Cost a Business? Here’s How to Find the Real Number

February 21
By

We know downtime is costly. According to Gartner, downtime can cost as much as $5,600 a minute, which sounds terrifying, but how much does it really cost for you and your specific situation? There are dozens of downtime calculators online, but they’re typically too simple. Really, they’re marketing tools to help illustrate the cost of downtime generally, but they’re not business tools for calculating your or your client’s real costs. Every situation is different because of many variables, but if you want the real number, you have to do some math to find it.

Before we begin, it’s worth noting that there are dozens, even hundreds of variables that affect the cost of downtime, and many of them aren’t so easily quantified. We can attempt to arrive at a solid number, but the cost of downtime depends on the type of business, the event that causes downtime, and indirect costs, which we’ll explore later.

Estimated Labor Cost Per Hour

The costs that are easiest to tally relate to labor. Any time employees are not completing work, the company is paying them to perform at a lower level. To get to the estimated labor cost per hour, you need to know:

  • Number of employees
  • Average employee wage per hour
  • Average percentage of lost productivity (What percentage of employees are affected by downtime? Some? All? Choose a percentage that’s closest.)

With that information, use this formula to find your estimated labor cost per hour:

(number of employees * Average employee wage per hour) * Average % of lost productivity = Total labor cost per hour.

Estimated Revenue Loss Per Hour

Next, you’ll need to determine how much revenue you lose per hour of downtime. Understand that this formula gives you an idea of how much revenue a company could lose per hour, but it’s the highest possible percentage. If a company suffers downtime, that doesn’t always mean it loses 100 percent of the revenue over the course of the downtime. For example, if someone visits a web store for a product but the site is down, they may go to a competitor, but they could also come back later. You may wish to take the total from this section, and multiply it by a percentage of lost revenue to get a more accurate picture for your business. In any case, here’s the data you need:

  • Gross annual revenue
  • Days per year open for business
  • Hours per day open for business

With that information, use this formula to find your estimated revenue loss per hour.

((Gross annual revenue / days per year open) / hours per day open for business) =  Estimated revenue loss per hour.

Estimated Hourly Downtime Cost

Next, you’ll add the totals from the previous two sections to get the total hourly downtime cost. Use this formula:

Estimated labor cost per hour + Estimated revenue loss per hour = Total downtime cost per hour

Duration of Downtime

Now that you know what an hour of downtime can cost, you can multiply that by the number of hours downtime lasts to get the total downtime cost. Downtime events can be brief, but depending on the cause of downtime, they can last hours – sometimes days or weeks. As the hours add up, so does the lost revenue and wasted labor time. Many businesses are satisfied understanding only the cost of downtime per hour, but there’s one more category worth thinking about: indirect costs.

Indirect Costs

Indirect costs are tied to revenue, but aren’t as easy to measure with hard figures. However, they can be more crippling than the loss of revenue itself. Indirect costs add up quickly and can prevent a lot of downstream work getting done. They can even send your company on a downward spiral. Here are the biggest indirect costs to consider:

  • Loss of reputation. If systems go down at the wrong time, you can’t meet your commitments. This can lead you to losing clients you have, and can even prevent you from finding new ones.
  • Loss of opportunity. What did you miss while you were down? Did a big potential client try to visit your website but couldn’t access it? Will they come back to you or did they already make a deal with a competitor?  Did a huge deal fall through because your cloud platform broke during a key presentation? These are problems downtime causes.
  • Re-doing work. Downtime is often coupled with data loss. If data loss causes work to disappear, someone often must do that work again, which slows your business down and costs you opportunities and workforce hours.

Conclusion

It’s easy to see how a few hours of downtime can cause thousands of dollars in loss, and how that cost coupled with indirect costs can put a business in the ground. Backup and disaster recovery solutions that prevent downtime pay for themselves quickly. Investing in these tools is less a costly burden and more a form of insurance. Make sure your business stays hale and hearty for years to come by taking the time to evaluate these costs and how much you can invest in downtime prevention.