The real cost of network downtime

According to Spot Migration, 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 accounts and legal the cost of downtime is £3.6 million a year. That equates to £258,000 or £4,300 per business. It doesn’t just cost you in lost revenue either, a huge 545 working hours are lost every year. If you base that on the average UK hourly wage of £13.75 it works out to be an average of £7,235 per employee.

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 apologise 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

⇒ The cost to restore IT systems

⇒ Materials lost/disposal and cleanup costs

⇒ The 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 the average labour cost of a downtime event:

Most business owners don’t have a comprehensive grasp of IT so many won’t know the real cost of having IT failures until something goes wrong.Its rare that after a big outage they don’t address their disaster recovery and technical processes, for good reason.

When you understand the real cost of downtime for your business it changes from being a small daily/week annoyance to a serious issue that needs effective solutions. A good way to calculate the cost of an internet outage to your business is :

1. Work out the average hourly salary of all your employees than have been effected. You may need to speak to HR for this or to give a quick calculation use the UK average hourly rate – but keep in mine if you pay your employees well or have all office staff this figure is likely to be lower than your own.
2. Figure out how many of your employees are stopped working as a percentage. Its unlikely to be every employee as IT would generally be working during a downtime & receptionists, manual labour etc.
3. Use this information to calculate the cost of downtime = (Impacted Employees) X (% impacted) X (Average hourly salary)

To put it in a real world example:

(1,000 impacted employees) X (£20 average hourly rate) X (50% productivity impact factor) = £10,000 per hour of productivity cost impact.

If you are running on broadband and think leased line costs are too high – the 3 year contract will likely be around the same mark as what a single hour of downtime would cost you.

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 lose 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.

Business Continuity Price vs. Downtime Cost

Despite the fact that business downtime events are becoming more and more expensive, over half of businesses still don’t have a disaster and recovery plan. Many put it off until a downtime event occurs, which tends to be more costly than investing in a solution now.

We’re all guilty of procrastinating, but now that you know what a downtime event costs your business, you should use it as a benchmark against what it would cost you to invest in business continuity solution like a leased line.

Now if your business cannot afford any downtime, there are business continuity solutions that can keep your downtime to minutes, even in a disaster event. For example, with our higher-end line, you can boot-up a critical server that just crashed online in minutes and gets back to business. From there, you have 30 days to procure a new server (seriously, it can act as your server for 30 days). Obviously, this line costs more, but if your business starts to quickly haemorrhage money during a downtime event, it is a wise investment.