How to Calculate What an Hour of Downtime Really Costs Your Business
If your systems went down for an hour tomorrow, what would it cost you? When asked this question, most business owners pause and guess a number that is almost always too low.
The costs of downtime are sneaky and difficult to measure. They don’t appear neatly in a report. They scatter across your day in ways that are easy to miss unless you sit down and map them out.
This blog post will walk through a five-minute assessment with four simple components that provides a real number you can plan for.
The back-of-the-napkin downtime calculator
You don’t need to create a complicated spreadsheet to measure potential costs. The formula is simple enough to compute on the back of a napkin.
- Lost revenue
Start with your average revenue per hour. Divide your annual revenue by about 2,000 (roughly the number of working hours in a year). If you bring in $2 million a year, that’s around $1,000 per business hour. If your systems are down and you can’t process orders, serve customers or close deals, that money doesn’t come back. It’s gone.Your number: $___ per hour
- Idle employees
Count the employees who can’t do their jobs when systems go down. Multiply their average hourly cost (wages plus benefits) by the number of people affected. Ten employees at $30 per hour is $300 sitting idle. Every hour.Your number: $___ per hour
Now add the $___ per hour in lost revenue and the $___ per hour for idle employees.
This $___ per hour is your subtotal.
- Recovery time
This is the cost most people miss completely.When systems come back online, things don’t just snap back to normal. There’s catch-up work. Re-entered data. A scramble to figure out what got lost. Delayed responses to clients who were waiting.
A one-hour outage rarely costs just one hour. A conservative rule of thumb is to add 50% for recovery. A one-hour outage realistically costs you 1.5 hours of disruption.
Multiply your subtotal by 1.5 to get your estimated downtime event cost $___
- Customer impact
This one is harder to assign a dollar amount to, but it can be the most expensive of all.Think about what happens on the customer side when you go dark. Missed calls. Failed transactions. Prospective customers who reach out at a decision point and hit a dead end. The longer the outage, the higher the cost.
Even if it’s just one customer, think about what they’re worth to your business over time. Is it $5,000? $25,000? More?
Ask yourself: what’s one lost customer worth to you? What does your number look like?
Let’s run through a quick example. Remember, all numbers are approximations.
Take a 20-person accounting firm bringing in $3 million a year.
- Lost revenue: $1,500 per hour
- Idle employees (15 affected at $450 per employee): $6,750 per hour
- Subtotal: $8,250 per hour
- With the recovery multiplier: $12,375 per hour lost in downtime
- Plus, customer impact: hard to put a number on, but very real
One hour of downtime costs over $12,000 before you factor in a single customer relationship. Here’s the question worth sitting with: how many hours of downtime would it take to cost you more than what you’d spend in a full year to prevent it?
For most businesses, the answer is not many.
Why this number almost always gets underestimated
Lost revenue from downtime doesn’t show up as a line item. Nobody sends you an invoice that says, “here’s what you didn’t make while your systems were down.”
Lost customer revenue is hard to calculate. The customer who needs you in that moment doesn’t wait around. They called you with a question, tried to place an order or needed a quick answer to keep things moving on their end. Your system was down and they got silence when they expected a response.
Rather than trying again later, they start looking for someone else who can help them because they can’t afford to wait. There’s no alert for that. No paper trail of when you went from being their go-to to one of several options.
You have the number. Now what?
Most businesses don’t run this calculation. Once you do and see the number, it changes how you think about downtime. It’s not just a nuisance; it’s a potentially significant cost.
Now that you have the data, are you comfortable with the risk?
If you’re not, this is exactly where we can help. Schedule a 10-minute discovery call and we’ll walk through your number, where your biggest risks are and how we can reduce them.
