What is the Cost of Downtime?

For most organizations, internet connectivity is a non-negotiable business imperative; customers expect it, and organizations rely on it to complete transactions. A slew of varied circumstances can interrupt an organization’s connection — including but not limited to human error, faulty equipment, or cybercrime. Each one can stop a business in its tracks, leading to one of the most dreaded business occurrences: downtime. 

The concept is all too familiar to those in the retail space. Eighty-one percent of retailers experience unplanned downtime at least once a year, and it tends to be costly. When an issue surfaces, retailers are often left waiting too long for a resolution, begging the question: how much is downtime really costing them? In this article, we outline the true cost of downtime for  retailers, the causes that contribute to it, and how it can be avoided. 

The Average Cost Downtime

Even with 99% uptime, the average retailer experiences over 80 hours of unplanned downtime every year. And while retailers know that downtime will cost their businesses — they are often bewildered by how much once they crunch the numbers. The average retailer shells out a staggering $5,600 per minute of downtime. However, this figure varies significantly depending on the size of the establishment and the scope of the outage.

A recent Retail Touchpoints study polled 100 U.S. store managers to find that their stores lose approximately $855 per hour when a point of sale (POS) device goes down in a single store. What makes this number more alarming is that 87% of retailers wait for up to four hours for support, and relaunching systems can take up to 5.43 hours — resulting in thousands of dollars in lost revenue.

Downtime Costs Beyond Revenue Losses

While downtime has considerable short-term consequences (like loss of revenue), it can also lead to significant long-term repercussions. According to an Infrascale survey of 500 small and mid-sized businesses, 37% cited losing customers as a direct consequence of enduring IT downtime.

Many retailers are unable to process customers’ debit and credit transactions when they’re disconnected from their network. When customers cannot complete their purchases, they can become frustrated and turn to a retailer’s competitors. In fact, one-third of consumers (32%) are willing to walk away from a brand they love after just one bad experience.

Downtime can also negatively impact a retailer’s reputation — after all, bad news travels fast. Dissatisfied customers typically tell nine to 15 people about their experience, a habit that’s highly effective in preventing future customers from visiting an establishment. The majority of people (92%) trust recommendations from friends and family more than any other source.

Calculating Downtime Costs

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Quantifying the cost of downtime enables retailers to decide whether they should invest in upgrading their IT infrastructure. To do this, retailers will want to identify the amount of revenue their store generates per hour (which is the hourly amount it would lose if it couldn’t operate) and the hourly cost of lost productivity.

Calculating revenue costs:

To calculate downtime-related revenue loss, a retailer will want to identify its store's average hourly revenue. They can begin by dividing their store’s annual revenue by 52 weeks to find its weekly revenue and then divide the weekly revenue by the number of hours the store is open each week. For instance, if a store generates $2 million in annual revenue, its weekly revenue would be $38,462. If the store were open 40 hours each week, a retailer would divide its weekly revenue ($38,462) by 40 hours to arrive at an average hourly revenue of $962.

Calculating weekly revenue: $2M annual revenue / 52 weeks = $38,462

Calculating hourly revenue: $38,462 weekly revenue / 40 hours = $962

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Calculating productivity costs:

The next figure to consider is the loss of productivity. If a one-hour IT hiccup reduced employees’ productivity by 80%, and six employees were paid at $40 per hour, a retailer would endure $192 in lost productivity.
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Calculating productivity costs: 6 employees x $40 per hour = 240

80% of productivity costs: ($240 / 100) * 80 = $192

If we combine the store's hourly revenue loss with its hourly productivity loss ($962 + $192 = $1,154), and multiply that number by 3 hours of downtime, we arrive at a cost of $3,462 for three hours of downtime.

Causes of Downtime

A host of various factors can cause downtime — and some of the most common causes include hardware failures, software failures, and cyber-attacks. Below is a breakdown of these culprits and how they can disrupt a retailer’s operations.  

Server Failures 

A server is a computer or computer program that manages access to a centralized resource or service. It collects and sends data across a local business network or across a broader network that spans multiple locations. Servers authenticate users, store critical information, and host business application databases. They can function as a terminal, digital signage player, or back-office PC. 

A power surge can shorten a server’s lifespan by destroying its hardware or corrupting its software — specifically if it takes place during a software update. A server failure can result in significant data loss and prevent staff from logging into their user accounts. Importantly, servers are often the backbone of critical POS systems — and their failure can paralyze sales.  

Cybersecurity Threats

Cyber security is the practice of protecting networks, servers, computers, mobile devices, electronic systems, and data from malicious attacks. It may begin with simple measures like fraud detection software, spam filters, multi-factor authentication, and file encryption. Interestingly, human error is typically the cause of security breaches.

Without proper employee training and the right protocols in place, security threats can lock a retailer’s systems and render them unusable — causing downtime. Cyber attacks can also lead to data breaches, which have far-reaching and potentially detrimental business consequences.

Network Outages

A retailer will encounter a network outage when an internet service provider experiences problems with its network equipment or underground lines. However, faulty or misconfigured equipment can also cause network outages. A network outage will prevent a retailer from accessing the internet, which often stops business in its tracks.

Minimizing Downtime Costs with Riverstrong

While downtime can’t be eliminated completely, it can be minimized and, in many cases, avoided. Gartner predicts that by 2025, organizations that invest in building digital immunity will decrease their downtime by 80%.

With the help of Riverstrong’s proactive managed IT services, retailers can seamlessly ensure the reliability and security of their hardware, software, and connectivity devices. Our extensive expertise and due diligence enable us to collect the information we need to keep retailers online and ensure their IT environment runs smoothly and efficiently. 

Our approach includes conducting extensive security and network assessments to ensure your infrastructure is safe and reliable. We also proactively maintain and monitor your network and devices to keep tabs on the health of your infrastructure. Our network and device monitoring solutions add an additional layer of protection and help detect problems early, enabling retailers to resolve them before they cause systems to crash.    

Rather than passively waiting for IT failures to run their course, Riverstrong can help you develop an IT disaster recovery plan that will put your establishment on the offense. We prioritize the recovery of IT resources to support time-sensitive business functions. Riverstrong ensures your hardware, software, connectivity systems, and security measures are running at peak performance.
 
To learn more about how we can transform your IT environment to make your store more productive, agile, and secure, reach out to us today!