The Average Cost of IT Downtime for an LA-Based Business

Los Angeles businesses rely on a functional IT system every day. An outage disrupts this operation, creating big problems for any company. A server crash, a network failure, or a cyberattack can cause immediate, serious trouble.

Studies show downtime costs are rising and our managed IT support company has helped countless businesses recover after such events.

What Is IT Downtime

IT downtime refers to periods when IT systems, services, or infrastructure are unavailable or non-functional, preventing normal operations. This can affect hardware (servers, networks), software (applications, databases), or services (email, websites).

Downtime can be planned (e.g., for maintenance or upgrades) or unplanned (e.g., due to hardware failures, software bugs, cyberattacks, or power outages). It often results in lost productivity, revenue, or customer trust, depending on the duration and impact.

Understanding the Range of Downtime Costs

The cost of downtime varies dramatically depending on your business size and industry. For large businesses, downtime now costs an average of $9,000 per minute, while IT outages cost $14,056 per minute on average across all sectors. However, these figures primarily represent enterprise-level businesses with significant revenue streams.

For smaller businesses, the picture looks quite different. The $9,000-per-minute downtime cost is oft-repeated, but it primarily applies to enterprises operating on billion-dollar annual revenues. For smaller businesses, this figure is a red herring. This is an important distinction that many Los Angeles businesses overlook when planning their downtime prevention strategies.

How to Calculate IT Downtime Costs

To accurately assess the damage from an outage, you need to look at four key areas:

1. Lost Revenue: This is the most direct cost and the easiest to track. It’s the money you lose in sales, transactions, or services that can’t be completed during the outage. For an e-commerce site, this is every purchase that doesn’t happen. For a financial institution, it’s every transaction that can’t be processed.
2. Lost Productivity: When systems fail, your employees can’t work. This includes everyone who relies on the affected system, from the sales team that can’t access customer data to the support staff who can’t answer calls. This cost isn’t just about salaries; it’s about the lost output and work that doesn’t get done.
3. Recovery Costs: These are the immediate expenses incurred to fix the problem and get systems back online. Think of overtime pay for your IT team, fees for external consultants, or the sudden need to purchase new hardware or software to resolve the issue.
4. Intangible Costs (Reputational Damage): This is the hardest part to quantify but can have the most long-lasting impact. A system outage can erode customer trust, damage your brand’s reputation, and lead to a loss of future business. It’s the silent killer of your long-term success.

A Simple Formula for a Complex Problem

You can estimate your total downtime cost using this formula:

Total Downtime Cost=Lost Revenue+Lost Productivity+Recovery Costs+Intangible Costs

Let’s break down how to calculate each part.

1. Calculating Lost Revenue

To figure out lost revenue, start by finding your average revenue per hour. You can do this by dividing your annual revenue by your total annual operating hours.

• Formula: (Total Annual Operating Hours/Annual Revenue​)×Downtime Hours

For example, if your company makes $10 million in revenue and operates 2,000 hours per year, your hourly revenue is $5,000. A 3-hour outage would cost you $15,000 in lost revenue alone.

2. Calculating Lost Productivity

This calculation considers the number of employees affected and their average hourly wages.

• Formula: (Number of Affected Employees×Average Hourly Wage)×Downtime Hours×Productivity Impact Percentage

For instance, if 50 employees earning an average of $35 per hour are affected by a 4-hour outage with an 80% loss in productivity, the cost is:

(50×$35)×4×0.80=$5,600

3. Calculating Recovery Costs

These are the direct costs you can track on your balance sheet. Simply add up all the expenses related to resolving the outage, including internal and external labor costs, and any new hardware or software purchases.

4. Estimating Intangible Costs

While there’s no perfect formula for this, you can estimate the impact by considering the lifetime value of a customer. If the outage causes you to lose a key client, what is their long-term value to your business? You can also estimate a percentage reduction in future revenue due to reputational damage.

An Example in Action

Let’s apply these calculations to a fictional company, “Widget Co.,” that experienced a 6-hour outage:

• Annual Revenue: $50 million
• Annual Operating Hours: 2,080
• Affected Employees: 200
• Average Wage: $45/hour
• Productivity Impact: 90%
• Recovery Costs: $10,000 (overtime and external support)
• Estimated Intangible Costs: $25,000 (lost clients and brand damage)

1. Lost Revenue: (2,080$50,000,000​)×6=$24,038×6≈$144,230 2. Lost Productivity: (200×$45)×6×0.90=$48,600 3. Recovery Costs: $10,000 4. Intangible Costs: $25,000

Total Downtime Cost: $144,230+$48,600+$10,000+$25,000=$227,830

Industry-Specific Considerations for LA Businesses

Los Angeles hosts a diverse business ecosystem that includes entertainment, technology, manufacturing, logistics, and financial services. Each sector experiences downtime differently. For instance, an e-commerce business loses direct sales revenue during an outage, while a manufacturing facility might face production delays that cascade through supply chains for days or weeks.

The entertainment industry, particularly prominent in LA, faces unique challenges where downtime during critical production periods or content distribution can result in missed deadlines with enormous financial consequences. Similarly, the city’s role as a major logistics hub means that downtime at transportation and warehousing companies can create ripple effects throughout supply chains.

Factors That Influence Your Specific Costs

To understand what downtime might cost your LA-based business, consider these key variables that act as multipliers on the base cost calculations. First, examine your revenue dependency on digital systems. A business that processes all transactions electronically will face higher per-minute costs than one with alternative payment methods.

Next, evaluate your customer expectations and contractual obligations. Businesses serving other companies often face penalty clauses for service interruptions, while consumer-facing businesses might lose customers who simply go elsewhere during an outage.

Geographic factors also play a role. Los Angeles businesses often serve customers across multiple time zones, meaning downtime during peak hours in one region might coincide with business hours elsewhere, compounding the impact.

Practical Steps for Assessment

To determine your specific downtime costs, start by calculating your average revenue per minute during peak business hours. Then factor in the additional costs of employee productivity loss, customer service responses, and any contractual penalties you might face.

Consider conducting a brief thought experiment: if your primary systems went down right now during your busiest period, how much revenue would you lose in the first hour? How many customers might you lose permanently? What would it cost to recover and restore normal operations? These questions help you move from industry averages to your specific situation.

What Are the Common Causes of Unplanned IT Downtime

Common causes of unplanned IT downtime include:

1. Hardware Failures: Malfunctioning servers, storage devices, or networking equipment, such as hard drive crashes or power supply issues.
2. Software Issues: Bugs, glitches, or crashes in applications, operating systems, or databases, often triggered by updates or compatibility problems.
3. Cyberattacks: Malware, ransomware, DDoS attacks, or phishing compromising system availability or data integrity. Cybersecurity is one of our top services and a huge money saver.
4. Human Error: Misconfigurations, accidental deletions, or improper handling of systems by IT staff or end-users.
5. Power Outages: Loss of electricity, either from grid failures or inadequate backup power systems like UPS or generators.
6. Network Failures: Connectivity issues from router failures, ISP outages, bandwidth overloads and other network management problems.
7. Natural Disasters: Earthquakes, floods, or storms damaging data centers or infrastructure.
8. Overloaded Systems: Insufficient capacity to handle unexpected spikes in user demand or traffic.

These disruptions can cascade, amplifying impact. For instance, a 2023 report noted that 60% of unplanned outages stem from hardware or software failures, with cyberattacks rising as a major contributor.