Three little words business owners dread: “Unable to connect”
We already know that internet outages are frustrating when you’re trying to get work done and that they can wreak havoc on your schedule and productivity.
But for most businesses, they're also much more costly than you think.
So we’re breakin’ it down, with real numbers, to show you how to calculate the true cost of an internet outage for your business.
(Don’t worry though, we won’t leave you hanging. We’ll also give you some tips on how to protect your business from losing boatloads of money to downtime.)
Labor Costs
Paying your employees is one of the biggest costs of doing business. When the internet goes down, most of that “doing” grinds to a halt, but your employees still need to be paid for their time.
Lost Labor
The first thing that people think of when they imagine the cost of lost labor is when employees sit around, doing nothing—and it adds up fast!
To calculate just how much it costs, you need three pieces of information:
- The number of people affected (We’ll call this “P” for People)
- The average employee cost per hour (We’ll call this “R” for Rate)
- The number of hours the outage lasts (We’ll call this “H” for Hours)
P x R x H = total cost of lost labor
For easy math, let’s imagine you have a 10-person company (P) where everyone is making $75 per hour (R), and you have 1 hour (H) of downtime. Here’s how you’d calculate the labor costs:
10 people x $75/hour x 1 hour = $750 of lost labor
Over the course of the year, if you're up 99% of the time and down just 1%, you could lose as much as 3.65 days of total time.
At our little 10-person shop, let’s call it ExampleCo, that could mean $65,700 in lost labor costs over the course of one year, assuming worst case-scenario that all that downtime happens during working hours. (And that's if your internet goes down just 1% of the time...)
Return on Labor
Return on labor (also called “lost revenue”) refers to all the value your employees would have created if they hadn’t been sidelined without internet during an outage.
The average return on labor is an estimated 2-10 times what you would have spent on your labor. Even if we go with the middle of that range and give ExampleCo a 6x return on labor, we’re now looking at $394,200 in lost revenue.
Operating Costs
Unfortunately, your employees aren't the only things you’re paying for during an outage. Let’s take a look at all the things you have to support them, all going unused.
Office Space
With no internet, your office space is pretty useless. (Ok, sure, the Keurig still works but beyond that, ExampleCo is a sitting duck.)
On average, New Yorkers are probably paying around $85 per square foot for office space in Midtown, and it’s recommended to have a 10 ft by 10 ft space for each employee. Since ExampleCo has 10 employees, we’re looking at $85,000 per month for the office.
Rolling with that 1% downtime of 3.65 days per year, that's $10,341 for an office you can't work in.
Internet Service
Probably the most annoying part of an internet outage is that you're often still paying for the internet service that you’re not able to use. (Check your SLA, though. Some ISPs do offer credit or reimbursement if downtime exceeds their guarantee.)
If we estimate that ExampleCo pays $1,000 a month for internet service, the 3.65 days of downtime would cost roughly $122 per year.
Software & Tools
Most companies also have a big batch of interconnected software and services that support their operations, especially as hybrid work increases and we have even more remote collaboration needs.
For example, many companies use cloud services for document collaboration and storage, like Google Suite, which runs around $12 per user. A communication platform like Slack will also cost around $12.50 per person.
It may not seem like a lot at first—$22 and $15 of annual subscription costs wasted on downtime—but that’s just the beginning.
Most businesses pay for software and tools to manage their website, social media, email, advertising, analytics, and more, and many of these tools are more expensive. (Social media management alone can cost $4,000 to $7,000 per month.)
Many businesses also have services to handle calendar booking, video calls, payment processing, customer relationship management, task management, payroll, benefits, expense processing, invoicing, and every other business-critical activity.
For the sake of easy math, let’s assume ExampleCo uses 10 services like these at $500 per month, we’re looking at $610 wasted on services that can’t be accessed while the internet is down.
Other Incalculable Costs
Many of the costs of downtime can't be expressed directly, but still have a big impact on your bottom line. Activities that pertain to relationship-building and brand are impacted by internet outages, even if they don’t show up on your profit and loss statements.
Business Relationships: When the internet drops, it’s likely to lead to rescheduled calls, missed deadlines, and slow responses. These interactions could damage your relationship with valuable clients, vendors, and partners.
Customer Satisfaction: When it comes to customer satisfaction, your response time matters. Customers won't be happy if you can't answer their support requests or questions quickly. The same goes for prospective customers: 78% of prospects buy from the company that responds to their inquiry first.
Brand Loyalty: After a negative experience, customers are much more likely to switch brands. With long-term customers worth much more than first-time customers, it's important to keep those existing customers happy.
Employee Morale: Downtime can lead to immense frustration for your employees who get behind on work and end up having to work late. An estimated 52% of workers already feel burnt out, and internet outages can make those problems much worse.
The True Cost of Internet Outages
When we add up the costs of lost labor and wasted operating expenses, we end up with nearly $480,000 in costs per year due to internet outages.
Remember: This number assumes you have only 1% downtime, at a company with just 10 employees, each paid $75 per hour. Any increase in the downtime, the number of employees, or the pay to those employees causes this number to jump up.
How to Protect Yourself
Ultimately, you can't 100% prevent any outages from ever happening. Noreasters and blackouts and manhole explosions (oh my!) could always take your connection down, completely outside anyone’s control.
But there are a few things you can do to minimize the risk of outages and to minimize their impact.
Start by selecting a reliable provider. Find an ISP with a high uptime guarantee and with a Service Level Agreement that will offer you credit for downtime. You may also want to see how the ISP is investing into their systems and infrastructure, to help minimize downtime and maximize their response time when unexpected accidents happen.
A great way to avoid these outage costs? Let us help.
Pilot guarantees that your subscribed bandwidth will be 100% available between any two points on Pilot’s network at all times, and our super easy-to-understand SLA details our promises to you. (Check it out here)
If your business is located in the NYC Metro Area, reach out to see how we get your business internet up and running… and keep it there.
