The Costs Of Internet Downtime

Post Date: 07/11/2023

How Much Is Your Business Losing To Internet Outages?

As technology advances, so too do businesses increase their reliance on the Internet for their daily operations. Unfortunately, due to this reliance, a single Internet outage can cost companies thousands of dollars, especially during busy times. For example, in early June of 2021, Amazon lost $34 million in sales due to a 1 hour Internet outage.

Calculate Your Business Downtime Cost

Various factors contribute to the costs of downtime for each business. The best way to calculate your business's downtime costs is as follows:

Cost Of Downtime = Lost Labor + Lost Revenue + Operation Costs + Recovery Costs + Intangible Costs

Let's break that calculation down with an example using a fake company we'll call Model-X. For our example, we'll say conservatively that Model-X stayed online 99% of the year and only experienced Internet outages/downtime for 1% of the year, which equals 3.65 days. How much could Model-X have possibly lost?

First, we'll calculate the lost labor. Even though Model-X's employees could not work during the 3.65 days of outages, they still have to be paid. For simple math, let's say Model X has 10 employees with an average hourly wage of $15.

Lost Labor Cost = Number Of Employees x Hourly Wage x Total Hours Of The Outage

Model-X Lost Labor Costs/yr = 10 x $15/hr x (3.65 days x 24 hrs)

Model-X Lost Labor Costs = $13,140/yr

Next, let's calculate the lost revenue due to the lost work. On average, a business's revenue is 2-10x its labor cost. For Model-X, we'll say that their revenue is 3x their labor costs.

Model-X Lost Revenue = $13,140 (Lost Labor Cost Due To The Outage) x 3

Model-X Lost Revenue = $39,420/yr

Every business has operation costs such as building rent, utilities (including the bill from the ISP (Internet Service Provider), plus their software/applications/tools for their employees to do their job (such as their point of sale system, cloud servers, email services, VoIP phones, and many more). As a business, you still have to pay for these even when you experience an Internet outage and your employees cannot work.

Lost Yearly Operation Costs = (Rent Or Property Tax + Utilities + Software, Applications, & Tools) x Outage Percentage

To keep things simple and low, say Model-X rents their building and pays $2,000/mo ($24,000/yr) in rent. Their average utilities (including their ISP) are $600/mo. ($7,200/yr) and they pay $1,000/mo ($12,000/yr) for all of their software, applications, and tools.

Model-X Lost Yearly Operation Costs = ($24,000 + $7,200 + $12,000) x 1%

Model-X Lost Yearly Operation Costs = $432

When a business experiences downtime, they typically have some recovery costs. Recovery costs include any IT support used to resolve the outage, any hardware replacement that may have been needed, plus any employee overtime to make up for lost time and even supply chain delays that you now may incur or rush shipping fees to meet deadlines.

Recovery Costs = IT Support + Replacement Hardware + Employee Overtime + Incurred Fees + Delay Costs

Again, to keep things simple, Model-X spent a total of $500 on IT support to help resolve connectivity issues, paid their 10 employees 6 hours of overtime each, and ended up paying $200 in a rush fee. Model-X did not have to pay for any replacement hardware or have any delay costs due to their year's Internet outages.

Model-X Recovery Cost = $500 + (10 x $15 x 6 x 1.5) + $200

Model-X Recovery Cost = $2,050

Lastly, when a business has Internet outages, it faces intangible costs. These include missed deadlines, project delays, lost customers/loyalty, lost reputation/public relations, lost future sales, and even a drop in stock prices. These are considered intangible or incalculable costs because some of these losses impact the year of the outages, some impact the future, and all have a large variability that makes it hard to calculate the exact cost.

This brings us to the total cost of Internet outages.

Cost Of Downtime = Lost Labor + Lost Revenue + Operation Costs + Recovery Costs + Intangible Costs

Let's add up all our numbers for Model-X and see just how much the company lost in a year for only 1% downtime (offline for a total of 3.65 days/year).

Model-X Cost Of Downtime = $13,140 (Lost Labor) + $39,420 (Lost Revenue) + $432 (Operations Costs) + $2,050 (Recovery Costs) + Intangibles

Model-X lost a minimum of $55,042 over the year to Internet outages. That's a loss of $628 per hour.

How much did your business lose?

Prevent Internet Downtime & Retain Your Profits

There are many causes for Internet outages. Retain your profits by keeping your business online using a backup Internet solution. If your business loses as much as Model-X, investing in a backup Internet solution can easily save you thousands of dollars a year.

When selecting your backup Internet, make sure to use a different connectivity method than what you are using for your primary connectivity to help prevent last-mile outages. For example, use 4G LTE/5G cellular connectivity if your primary connection is broadband fiber.

There are many 4G LTE/5G options, so do your research and pick a solution designed for business use cases, such as RocketFailover^® by Akative^®. Be wary of the cheap solutions offered on eCommerce sites like Amazon and cellular carrier websites. These solutions are not always complete and are often designed for residential usage with low-grade equipment that can't handle your business's network traffic.

Akative offers various failover/backup Internet solutions to fit business networks and budgets of all sizes. Our solutions are preconfigured for you, come with everything you need (including monitoring), and can be easily installed within minutes by those of all skill levels.