The Ugly Truth about Downtime Costs and How to Calculate Your Own

by | May 29, 2018

(Updated 3/30/21)

Every business wants to reduce its costs.

But what if avoiding technology upgrades to reduce expenditures was actually increasing them?

According to Gartner, The average cost of network downtime is around $5,600 per minute. That is around $300,000 per hour. For any business, $300,000/hr is a lot on the line.

Beyond the monetary costs, IT downtime can wear on your business’s productivity levels. Every time you get interrupted, it takes on average 23 minutes to get refocused on your prior task.

Network failures and power outages aren’t the only culprits when it comes to downtime either. Other top factors include:

  1. Outdated Software and Hardware
  2. Hurricanes and Floods
  3. Human Error

So how do you know where you stand when it comes to downtime costs? Here is a simple way to calculate how your business could be affected:

IT Downtime Formula

Cost of Downtime (per hour) = Lost Revenue + Lost Productivity + Recovery Costs + Intangible Costs

Lost Revenue

You need to calculate the amount of revenue generated per hour by your business. This would be the revenue per week/40 hrs. An important component to figure out your lost revenue is your business’s revenue dependence on uptime.

Uptime is time/percentage your site is up and operational online. For example, if you are an e-commerce store and solely sell online, you are 100% dependent on the internet for your business’s revenue. You will need to estimate the percentage amount of your revenue that is dependent on uptime.

Lost Revenue = Revenue/hr x downtime(hrs) x uptime(%)

Example: If my revenue is $3,000/hr and my network was down for 2 hours and my uptime percentage is 30% my lost revenue would equal: $1,800/hr

Lost Productivity

Due to down servers, employees are unable to perform their jobs. But their salaries are a fixed cost and do not change even during the downtime.

To calculate the productivity lost, you must first calculate each employee’s salary/hr. Then, estimate the percentage of productivity that is dependent on uptime and this could be different across employees.

(Uptime, remember, is simply the time or percentage your site is up and operational.)

This percentage is known as the Utilization Percentage.

Lost Productivity = Employee Salary/hr x Utilization % x Number of employees (with same Utilization %)

Recovery Costs

These are the costs accrued while fixing the issue. They can include but are not limited to:

  •  Repair services
  • Replacement parts
  • Lost data recovery
  • Other costs due to loss of data

These may not be as tangible at revenue and productivity costs, but they are equally as important when deducing your real downtime costs.

Intangible Costs

These are the costs that can sting the most for the long-term. These occur when downtime damages your reputation or your brand.

These costs ultimately affect businesses that rely heavily on uptime. Including intangible costs into the Total Downtime Cost Formula gives a better understanding of the long-term consequences that can occur due to downtime.

A Real World Example

In March of 2019, the Nordic metals firm, Norsk Hydro, suffered a ransomware attack called LockerGoga that shut down its global operations. This left their 35,000 employees around the world unable to progress with their work. At this point, they are still working to calculate the financial impact of the attack, loss of wages, productivity, and stock price drop.

Final Cost

Once you have calculated each separate cost, you can now finally plug them into the main formula and tally up your total downtime cost.

Does the number surprise you?

If you are ready to end the risk of downtime, contact us now to find out how our IT solutions can minimize that risk and fit seamlessly into your business.


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