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Selling Business Continuity by Calculating the Cost of Downtime

Posted 7 September, 2016by Mary McCoy

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Downtime is maddening. It’s not only frustrating, it can kill productivity and business continuity. And it can damage customer relations. These things are costly, yet your IT managed services clients may not realise how expensive downtime can be. 

Your customers look to you for advice as well as products and services. You’re the IT experts, and they are not. Often, SME owners don’t consider the fact that even a limited IT failure has a ripple effect throughout their organisation. Or, worse, they believe extended downtime won’t have much of an effect on their business. Why even talk about disaster recovery?

Helping your customers understand the true cost of downtime not only benefits them, it benefits your business as well. Cost calculations give them data and insight they can use to plan more strategically. And showing them the total potential cost of downtime makes an even stronger case for choosing a backup and disaster recovery (BDR) plan and your related services.  

How Do You Calculate the Cost of Downtime for Your Clients?

Several factors contribute to the total cost of downtime: 

Cost of Downtime (per hour) = Lost Revenue + Lost Productivity + Cost to recover + Cost of intangibles (i.e. reputation cost)

Let’s look at each of these elements more closely.

Lost Revenue

If your client’s business is down, they cannot generate revenue. Follow these steps to calculate that cost:

  1. List the areas of their business that generate revenue
  2. Calculate the amount of revenue per hour each of these areas generates (average revenue per week/40 hours, or average revenue per month/30 days)
  3. Estimate how much each revenue-generating area relies on uptime, as a percentage. For example, if your customer is an eCommerce website, 100 percent of their income is uptime-dependent. If your customer is a florist, perhaps only 10 percent of their business depends on uptime. Customers could still walk into their store even if their website is down.
  4. Figure the amount of revenue per hour that is lost during downtime for each business area. For instance, let’s say your eCommerce customer generates £50/hour. If their website is down 2 hours, they lose £100. However, let’s say your florist customer also earns £50/hour in revenue. If their website is down for 2 hours, this only affects 10 percent of their business, so they lose only £10.
  5. Add your figures for all revenue-generating areas to get the total cost of downtime per hour for your customer’s business.

With that baseline in place, you’ll be able to easily calculate the amount of revenue lost during an outage or downtime event.

Lost Productivity 

When technology isn’t working, people aren’t working. Your customer’s IT team is working, but on non-revenue producing activities such as getting systems back online. But salaries are a fixed cost, so that money is spent no matter what. Follow these steps to calculate that cost of lost productivity:

  1. Note how much each employee earns per hour.
  2. Identify the percentage of each person’s productivity that is reliant on uptime. If your client is a dental office, the dentists themselves may not be affected if a server goes down, whereas the receptionist can work only at 50 percent capacity – answering the phones but not using her computer to book appointments, etc.
  3. Multiply each employee’s hourly salary by their “uptime percentage.” If the receptionist earns £10/hour and she can work only at 50 percent when systems are down, your client is losing £5 every hour that employee is affected by downtime.
  4. Add the figures in #3 for all employees to get the total hourly cost of lost productivity.

Cost to Recover

Clients often forget there are costs associated with recovery itself, so help them make a list of what they may face, such as:

  • Services to recover lost data
  • Devices or tools that may require repair or replacement
  • Cost of lost data
  • Ongoing costs that result from the data loss

This helps them develop a more effective disaster recovery (DR) plan as well as understand company-wide ramifications of downtime.

Intangible Costs 

Things like loss of their customers’ goodwill are incalculable, but they can be devastating. What if a good customer were to abandon your client as a result of a downtime event? You can calculate their (now lost) lifetime customer value. Brand reputation is a critical business asset for your customers.

Tote It All Up

Plug your numbers for each component into our initial equation, and there’s your client’s projected total cost of downtime. Likely it’s significantly higher than the cost of hiring your managed services. 


See also:

 ebook-explaining-the-cloud-to-your-clients

Meet Mary! Mary McCoy is a Senior Demand Generation Programs Manager at Continuum, where she's worked for over two years. Mary has consulted with hundreds of partners, lending website, blog and social media support. Before that, she graduated from the University of Virginia (Wahoowa!) with a BA in Economics and served as digital marketing intern for Citi Performing Arts Center (Citi Center), spearheading the nonprofit’s #GivingTuesday social media campaign. Like her school’s founder, Thomas Jefferson, Mary believes learning never ends. She considers herself a passionate, lifelong student of content creation and inbound marketing.


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