If your business has never experienced a major computer problem, it’s easy to underestimate just how damaging downtime can be.

In a survey of small business owners, 65% estimated they would only lose $500 if their company’s network went down for a day. In reality, downtime is much more costly than $500 and can even lead to closed doors.

Underestimating the Cost of Downtime

The same study finds that 20% of small businesses have a major IT accident resulting in downtime every five years; and of the small businesses that are hit with a major disaster, 40% will close for good. Meanwhile, 87% of small business owners believe they are immune to a catastrophic disaster.

An IT disaster resulting in costly downtown and data loss can strike a business of any size and come from multiple sources that are uncontrollable, like hardware failure, a hacker attack, human error, and more.

Additionally, downtime is more costly than what many would suppose it to be because it does more than result in a loss of revenue. Downtime hurts your bottom line in other ways like the loss of productivity, damage control to make up for the lost time, repair expenses, brand damage and more.

Take for example a downtime situation experienced by Amazon for only two hours in June of 2008: it’s estimated that Amazon lost $30,000 a minute during this outage.

In another study, this one by CA Technologies, 200 companies across North America and Europe were looked at in order to determine the cost of downtime incurred from an IT outage.

Of these 200 (large) companies, it was discovered that $26.5 billion in revenue was lost each year, which comes out to a $150,000 annual hit for each business.

This study also discovered that IT outages are frequent, lengthy and can do more than cause monetary damage. A loss incurred from downtime also hurts a company’s reputation, the morale of the staff and customer loyalty.

A Couple of Cost Formulas

The cost of downtime will be different for every business. One thing every company has in common is that experiencing downtime caused by an IT outage will put an organization at serious risk of going out of business.

Here are two formulas you can use to calculate the cost of downtime for your business:

The first downtime formula determines loss of sales:
Yearly Revenue/Business Hours x Information Technology Impact to Sales % = Lost Sales

The second downtime formula factors loss of employee productivity:
Employees Affected x Average Employee Cost Per Hour x Average % Affected by Information Technology = Lost Productivity

Implement a Disaster Recovery Program, If You Haven’t Already

If you don’t have a downtime solution in place because you didn’t see the need, you’re not alone. In the CA Technologies study, it was revealed that “56% of enterprises in North America and 30% in Europe don’t have a formal and comprehensive disaster recovery policy.”

However, that doesn’t mean that you shouldn’t. After determining the cost of downtime for your company, you may be shocked to see how expensive it would be to just lose one day of business to an IT problem.

The best way to prevent downtime is to have a reliable business continuity plan in place that will keep your operations up and running, even in the event of a major disaster.