You might have heard that even a minute of downtime can result in the loss of millions of dollars for businesses. However, let us have a look at a few examples:
- In November 2020, the AWS outage cost the company over – $100 million in revenue.
- In 2021, Facebook’s downtime cost the company nearly $100 million in revenue.
About 59% of Fortune 500 businesses experience at least 1.6 hours of downtime per week, which can cost nearly $46 million each year.
The previously mentioned downtime examples relate to the big corporations that have been on the market for a long time, have already started trusting relationships with their clients, and have high revenues to mitigate the result of downtime. Any mistake is estimated in financial loss, whether that means thousands or millions of dollars. Yet how much would such a failure cost for a small business? Or, on the other hand, could it just be estimated by financial costs. In any case, one small mistake could drive a business to close.
What does downtime cost?
Before we get into the explanations for downtime and its average expense to a business, it will be helpful to define what downtime cost means and what it affects. Downtime cost is defined as any profit that a business loses when its network or equipment stops working.
The cost of downtime means not only direct monetary loss but also affects your organization in at least four different ways.
Data loss is a nightmare for almost all companies. Data loss is an inconvenience that disrupts the day-to-day task of any information-based business. When sensitive data is lost, your business must spend time and resources recovering these files to fill the gaps that occurred by the loss. While you may have the option to locate hard copies of data, these may not be essentially as modern as the digital copies that were lost. Data loss caused by viruses or outages poses a serious threat as the extent of data loss caused can often be difficult to determine. It can be expensive for your business to weed out and fix broken files. Therefore, customers who are not able to access their accounts panic and eventually lose trust in your service or product.
Loss of Reputation
One of the most genuine and long-haul impacts of downtime is damage to your organizational reputation. If customers face any difficulty with your server outages while using the business service or product, they will leave negative feedback on the business and will not utilize their service again. Social media channels will spread the negative news about your brand like a wildfire, driving potential and existing clients to your competitors.
Loss of Productivity
Nowadays, practically every business provides its customer with online services, like individuals can exchange messages via chatbots, enquire, place orders, and receive an acknowledgment through email about its delivery. While all these business processes for online presence require human control, workers may fall out of the workflow if any chance of their server downtime occurs. Besides this, unplanned downtime can terminate work for the whole manufacturing unit at once and need extra effort and time to get everything back to running.
Loss of Opportunities
Loss of opportunities primarily means lost customers. An IT downtime will prevent a business from delivering its service. It was proven that about 47% of online visitors would leave a website unless it was loaded within 2 – 3 seconds. Because of service downtime, customers are not likely to wait for your business to solve the problem yet will instead find a superior proposal from your competitors.
Factors Contributing to the Cost of Downtime
The cost of downtime relies upon the type of industry, business revenue, outage duration, and surprisingly the time of the day. Suppose if we compare a small clinic and a bank that bases its activity concerning high-level transactions, the last option will have higher recovery and downtime costs. Likewise, the loss would be huge if downtime occurs during the business peak hours.
The cost of downtime depends on the type of industry, business revenue, outage duration, and time of the day.
Here we list the factors that are often considered when most businesses calculate their cost of downtime.
Industry verticals refer to the ranking or positioning of different industries that involve high-risk IT budgets as a level of revenue by sector. Industries with higher risk are banking, government, professional services, technology, insurance, manufacturing, and telecommunication. Because of the high-risk factor, these businesses can spend an average of $5 million, per hour of downtime. Other industries like education, retail, construction, and healthcare services have low chances of IT downtime risks; as a result, their downtime cost won’t be as detrimental.
It is one of the factors that influence the calculation of downtime. The more businesses depend upon online services, the more serious the losses. For instance, an e-commerce platform whose productivity depends just upon the server; and which makes high revenue from online sales has a higher financial value of downtime than a physical shop that individuals can visit and make financial transactions. Once, Amazon (well-known e-commerce online store) revealed that its downtime cost may reach $13. million per hour.
The last factor is the business size which plays a crucial role in downtime cost. There is a massive difference between an organization with 10,000 team members or a medium-sized company with 500 employees. In the event of a system outage, an employer would have to pay both for regular and overtime minutes or hours for employees competent to catch up with the workflow. Directly envision that huge associations can lose around $60 million, per year if they face a few system outages.
How to Estimate the Cost of Downtime?
With the help of the regular IT downtime formula, you can estimate your business downtime cost.
Cost of downtime (each hour) = Lost Revenue + Lost Productivity + Recovery Expense + Intangible expense
Lost Revenue = Revenue/Hour X Downtime (Hours) X Business Uptime Percentage
In this formula, the lost revenue refers to the amount of money your business earns each hour. Even if your business functions typical 40 working hours each week, uptime – the time when you depend on online operations and tasks – can be lesser unless you have an e-commerce store online. For instance, suppose your earning is $2,000 per hour, and you face a system outage for 3 hours, and you rely upon the internet for 40% uptime, then your downtime cost would estimate $2,400 per hour. If you are an e-commerce business owner; then you can consider 100% of your income to be directly subject to uptime.
Lost Productivity = Employee Pay/hour X Utilization Percentage X Number of Employee (same utilization percentage)
The subsequent step is to estimate lost productivity. When your employees cannot complete their work tasks due to server downtime, you are still required to pay them their fixed hourly salary. Simultaneously, uptime or usage percentage is the average percentage of time your employees depend on online operations and tasks. Like in the previous model of e-commerce store online, let us assume that you have 30 employees who work for your typical 8 hours per day, and you pay $12 each hour. The percentage of internet usage is 100. Therefore, your lost productivity cost would be equivalent to $360 each hour.
Concerning recovery costs, they can be unlimited and rely upon your business. Here you can incorporate multiple repair services, data loss recovery, employees overtime expense, and other costs concerning the process of getting your business back into its normal work process.
Eventually, intangible expenses are not straightforwardly materialistic, but rather a long haul. Here employers should consider their business reputation risk that could be seriously harmed, when your customers encounter difficulties against logging in or completing an online transaction, etc.
Therefore, the final cost of downtime will be the total of lost revenue, lost productivity, recovery expense, and intangible expense.
How to Reduce Downtime Costs?
In certain circumstances, it might be too late to prevent downtime; so here are a few tips on how you can reduce your downtime costs.
Create a Recovery-Plan
When downtime happens, you should have a previously supported plan with the next steps you want to take. The incidence response plan is a set of guidelines for your employees to face and recover from any planned or unplanned network incidents.
1. Rectify and Eliminate the Cause
While discovering and solving the actual cause of the downtime, you should be aware of its consequences. You should eliminate all points of failure from your processes to mitigate its consequences and lessen the downtime costs.
2. Focus on Communication
Customer service is extremely critical during downtime disasters. So, you should figure out how to caution your customers about the issue, why it is happening, and how long it will take for your team to resolve it. By keeping your customers in the loop, you will reduce reputation loss.
3. Request Help from Third-Party
If you outline that it is not within your power to resolve the cause of your service downtime, do not hesitate to request help from a third party. Initially, it might appear to be more expensive, but you may be happily surprised.
4. Prevent Failures
Once you address the issue and get your business to its normal regular process, it is time to contemplate what you can do to prevent it from reoccurring. It is impossible to ensure that your business will never encounter downtime, however next time you can be more prepared.
For What Reason Does Downtime Occur?
You are required to comprehend the actual cause of why downtime occurs. There are five key justifications for why businesses encounter IT downtime.
1. Human-Caused Error
According to recent insights, practically half of the IT downtime occurs because of human-caused errors. It comes with no surprise that human-caused errors are unavoidable, but you can limit their frequency by setting standards and guidelines that your employees should follow. Continuous training will help your employees in decreasing the number of potential mistakes and their seriousness.
2. Power Outages
Unlike human-caused errors, you cannot control power outages, as they are more often unplanned. Yet, your team can prepare strategies for them and lessen the downtime costs. A few helpful recommendations that many medium-sized and large corporations have utilized is to incorporate, getting a backup generator, transforming to off-site or cloud-based server hosting, obtaining a backup Internet connection. Those can be very expensive for start-ups and small-sized companies, yet they can exceedingly reduce costs associated with power outages.
3. Equipment Failure
When you are eager to start your own business, you will have a limited budget for IT hardware. However, equipment failure ranks third place among the justifications for why downtime occurs. It can be avoided if you duplicate your equipment and acquire a spare of them. Also, you should constantly update them.
4. Cybersecurity Demand
It is important to convey that cybersecurity breaches have incremented in the last couple of years. Cybersecurity threats are a genuine risk for your business nowadays. To safeguard your network and data from cyber-attacks, you can utilize multi-step authentication, fraud detecting software, and data encryption.
5. Server Insecurity
Server insecurity may sometimes lead to service downtime. Even when you have a stable network, you may encounter issues with your server. That probably occurs when the latest technology is utilized on old equipment. Furthermore, there is not a single hosting provider that can promise you 100% uptime for your business, yet cloud solutions and server technology will lower the chances and the expense of network downtime.
How to Cut-off Server Downtime?
The fact is that you cannot cut-off server downtime at once but rather can take all the available precautions to avoid this happening. If downtime occurs, figure out the reason and try to resolve it as soon as possible. Best maintenance practices to diminish the possibility of server downtime.
Strategies to prevent it:
- Keep the server room locked and avoid unauthorized entry. Most of the causes of downtime are a direct result of human mistakes, so limited access to the server room will limit such incidents.
- Give your organization an uninterruptible power supply like other medium-sized companies and big corporations have already done.
- Make regular and systematic server backups, together with data and operating system backups.
- Create a server maintenance agenda.
Most employers consider just monetary loss with regards to IT downtime. However, your customers’ awful experiences and the business’s ruined reputation are the two major things that companies should look after. Once your reputation is spoiled it can be difficult to gain back your customer’s trust and compensate for the damage to the perceived evaluated value of your business services.
The cost of downtime is enough to cause a few companies to go out of business. To mitigate unwanted consequences of downtime, have a comprehensive reviewed plan for business continuity. We recommend network assessment to comprehend the status of the network and define at what part your network is doing good and where it is not.
PMTT network assessment can give you a detailed map – that will identify performance gaps and point out areas of improvement that your network may require. Our network assessment gives you the insight that your IT plan is robust, and your network management is updated. Keep your critical infrastructure monitored 24x7x365 by an expert team. Effective network management can lead to better outcomes for your business.
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