What is the Cost of Downtime for Small Businesses in 2021?
by Scott Jack Content Contributor, E-N Computers 7+ years experience in healthcare IT and tech support.
What is the real cost of downtime? Many small business have big aspirations—and an Achilles heel in unreliable computer systems. Hardware used past a predetermined lifespan, especially in more extreme conditions, will unexpectedly fail. Software that is not kept up-to-date is a serious security vulnerability. Issues like these present a serious risk that can quickly amount to tens of thousands of dollars.
According to Aberdeen Research, small businesses of less than 500 employees with up to $50M in annual revenue experienced downtimes costs of up to $8,600 per hour in 2016. However, downtime costs vary dependent on several factors including industry, revenue, duration, time of day, and the number of staff impacted. Let’s take a look at common causes of unplanned downtime, how to calculate your business’ downtime costs, and how to mitigate the risks.
What is the cost of downtime?
For a company doing $10 million in revenue, downtime can cost up to $50,000 per day, not including intangible costs such as reputation damage.
Unplanned downtime happens when critical systems become unavailable unexpectedly. Causes include server failure, network outages either on the part of your internet service provider or inside your local network, and ransomware attacks.
Server failures occur when hardware components fail or software is corrupted. A power surge can destroy hardware or significantly shorten its lifespan, and can corrupt software especially if it happens during a software update. Because servers perform critical functions such as file storage, hosting a business application database, and user authentication, a server failure can result in significant data loss, limited application availability, and staff being unable to log in to their workstations. And just like workstations, servers are susceptible to malware attacks.
Network outages typically happen when an internet service provider experiences problems with network equipment or underground lines being cut. However, they can also be caused by misconfigured or faulty equipment on your internal network. Loss of internet connectivity can significantly hamper productivity for offices that rely on online services. And internal network problems can be challenging to suss out and resolve without the necessary training.
Ransomware is a type of malware that encrypts, or locks, your files so that they become unusable. The attacker then demands payment in exchange for decrypting, or unlocking, the files and may threaten to distribute these publicly or to competitors if payment is not made. While many small businesses feel they are obscure enough that they are not likely to be the result of a ransomware attack, the truth is quite the opposite. During a recent news conference, Homeland Security Secretary Mayorkas said “small businesses comprise one-half to three-quarters of the victims of ransomware”, with attacks up 300% in the last year. These attacks can potentially affect an organization for weeks.
Now that we have covered some of the causes and consequences of downtime, let’s consider the costs of downtime.
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How to Calculate Downtime Costs
At a high level, downtime costs have four components: lost revenue, lost productivity, recovery costs, and reputation costs. Let’s consider a fictional company with $10 million in annual revenue and 50 employees that experiences unplanned downtime lasting just one day. What will their downtime costs look like?
First, let’s calculate lost revenue. A company with $10 million in annual revenue has average weekly revenue of $192,308, or $4808 per hour.
$192308 / 40 hours per week = $4808 average hourly revenue
Next, we’ll determine lost productivity. In December 2020, the Bureau of Labor Statistics reported that private industry average employee compensation including wages and benefits was $36.23 per hour. Assuming our fictitious company’s employee productivity is reduced by 75% during this episode, one hour of downtime will cost the company $1358.63 in lost productivity.
50 employees * $36.23/hour total compensation * .75 lost productivity = $1358.63 lost productivity per hour
Putting these two figures together, we can see that during the one day outage, our fictional company lost $49,336 in revenue and productivity. Depending on the cause of the outage, they may have incurred recovery costs such as new hardware, overtime for their sole IT generalist, or consulting fees. In addition, the nature of the outage may have impacted their reputation with clients.
($4808 + 1359) * 8 hours = $49336 lost productivity and revenue in one day
As we described previously, “these expenses could be hidden in different categories – labor, marketing, operating expenses, and capital expenses could all be increased due to outdated or inefficient technology. These costs can even be lurking in accounts receivable, in the form of longer payment cycles and more overdue invoices and write-offs.” It is important to weigh your unique business considerations to arrive at your true cost of downtime.
Calculate Your Downtime Costs
Want to know exactly how much an IT outage will cost your company? Use this calculator to find an exact figure for your business.
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Mitigation of Downtime Risks
Evaluating the potential causes and consequences of unexpected downtime in your organization is half the battle. Mitigating these risks can be challenging and consume time and energy you could be spending on your business. Working with a managed IT services provider is an effective way to gain the skills, experience, and support needed to minimize your downtime risk. Whether you need comprehensive IT services or support for your on-staff IT professional, a managed IT services provider (MSP) can help in the following ways.
Consultation between key decision makers in your business and a Fractional Chief Technology Officer, account manager, and technical account manager from the MSP ensures that technology is implemented to meet your daily needs as well as the long-term vision for your company. Developing a strategy together puts you on the offense, setting the pace rather than haphazardly contending with IT failures that put your business at risk. Regular communication between you and the MSP allows all the right people to have the right information resulting in the right decisions for your company and your bottom line.
Security assessments and training improve your ability to defend against cyber threats. For example, performing a penetration test may find holes in your outer defenses that attackers can use to gain access to confidential information and control critical systems. Training will improve your team’s ability to recognize dangerous websites and emails and protect themselves.
Network management includes an initial network assessment, maintenance, and monitoring to ensure the speed and performance of your network infrastructure. As an early line of defense, your firewall will be configured to keep its attack surface as small as possible. To keep your business moving, network technicians continually monitor speed and performance, identifying and addressing network issues before they slow you down.
In addition to implementing safeguards against an unplanned outage, an MSP like E-N Computers can help you develop an IT disaster recovery plan as part of your business continuity plan to effectively manage business disruption as the result of an adverse event. This includes prioritizing the recovery of IT resources to support time-sensitive business functions. Such a plan ensures that all the requisite components of a system will be available: hardware, software, connectivity, and data.
We’ve created a Cost of Downtime Quick Reference Guide for you which highlights the common threats, cost formula, and steps you can take to protect yourself. Download it so you have a quick visual of the key points of this article.
Even if you have an IT professional on staff, competing priorities can make it a challenge for them to care for both day-to-day needs and long-term strategy. Read our article Why Your IT Team Needs Co-Managed IT to see how an MSP can augment your IT and help keep your business competitive.
Because of the increase in cyber attacks on all organizations, including small businesses, it is important to protect yourself. Watch our webinar, Three Layers of Cyber Security Protection, to learn about some of the ways to do so.