All of your company’s processes are affected by downtime, which results in lost transactions, idle equipment, and unmet commitments.
A network outage report typically answers two questions: how long the service was down and when it was restored. It rarely answers the question that drives budgeting: how much did those hours cost the business?
Without a proper analysis, redundancy seems like an expense, a stronger SLA seems like a luxury, and the cheapest connection wins the renewal. With analysis, those same proposals stop being IT requests and become risk-based decisions that management can evaluate. Here’s a calculation you can do weekly, using your own numbers, to have more information when contracting or renewing your connectivity service.
A Downtime Incident Costs More Than Anyone Realizes
Studies on the subject are consistent, and the figures exceed almost any internal estimate. The Uptime Institute’s 2025 Annual Downtime Analysis found that for 57% of organizations, most recent major outage cost more than $100,000, and one in five exceeded the $1 million mark.
The manufacturing sector is particularly vulnerable to losses caused by network failures. Siemens’ 2024 True Cost of Downtime report estimates that unplanned downtime costs the world’s 500 largest companies approximately $1.4 trillion annually, about 11% of their revenue, and that one hour of downtime at an automotive plant can cost as much as $2.3 million.
The Four Costs to Consider
Most internal estimates consider the first of these points, while a complete calculation includes all four.
1. Lost revenue.
Total sales and transactions that depend on connectivity: point-of-sale, e-commerce, order entry, payment processing, cloud-based ERP, and WMS. To calculate this, take the revenue flowing through connected systems during a normal hour of operation and estimate which fraction is actually lost when the network goes down. Some of that revenue is recovered later; be honest about how much. Deferred revenue also comes at a cost, in terms of cash flow and customer patience.
2. Stalled payroll.
People you pay even while they can’t work. Count the employees whose tasks depend on connected systems, multiply by their hourly cost (including taxes), and by the fraction of their work that has stalled. A warehouse crew waiting for the WMS is a real cost even if no sales have been lost.
3. Recovery.
The costs associated with returning to normal operations after the connection is restored, such as IT hours spent diagnosing and escalating issues, overtime and recovery shifts, urgent freight charges to save a shipment, or rework on interrupted production batches. These costs arise days after the outage and are therefore rarely included in the incident report.
4. Commitments and Trust.
This category includes missed delivery windows with customers that result in penalties, service credits you owe your own customers, and the harder-to-measure cost of a customer who begins to evaluate alternatives. Use a conservative figure here; even a cautious estimate is better than the zero this category usually receives.
Here's an example calculation you can use
Imagine a distribution operation in Mexico: three locations, 350 employees, order entry, and cloud-based warehouse management. These figures are hypothetical, so feel free to substitute your own.
Cost Category | Scenario | Cost per hour of downtime |
|---|---|---|
Lost revenue | MX$180,000 per hour passes through connected systems; 70% is intercepted | MX$126,000 |
Payroll on hold | 220 affected employees × MX$120/hour, including taxes | MX$26,400 |
Recovery | IT hours, make-up shift, rush shipping (per event) | MX$40,000 |
Commitments and Trust | One penalty per missed delivery window (per event) | MX$25,000 |
A three-hour outage: 3 × (126,000 + 26,400) + 40,000 + 25,000 = MX$522,200. Half a million pesos for an incident that no one will remember in six months, in an operation that isn’t even particularly large.
The formula behind the table is simple enough to defend it to the finance department:
Cost per outage = (lost revenue per hour + lost payroll per hour) × hours of downtime + recovery costs + contractual penalties
Now calculate the annual percentage: what your uptime percentage actually promises
An isolated outage is just an anecdote. Annual downtime is a business case, and it’s hidden in the uptime percentage of your current contract. The math doesn’t change:
- 99.80% availability allows for up to ~17.28 hours of downtime per year
- 99.90% availability allows for up to ~8.64 hours of downtime per year
- 99.95% availability allows for up to ~4.32 hours of downtime per year
Two caveats when reading an SLA against this math. First, the uptime percentage gives you the total allowed, not the distribution: 4.32 hours concentrated in a single incident during your peak season hurts differently than if they were spread out over minutes throughout the year. Second, the remedy matters just as much as the goal. Service credits refund a fraction of your monthly fee; they do not refund your entire monthly payment. What you’re really buying with a stronger SLA is the engineering that supports it. We’ve already written in depth about what an SLA really means for your business.
What Changes When the Number Is on the Table
With the hourly cost on the table, three design decisions speak for themselves:
Last-mile redundancy.
Most business outages occur in the last mile, the physical stretch between the provider’s network and your site. A second, physically diverse access route is the most direct way to reduce your annual downtime. Here’s how to design last-mile redundancy so that neither route fails simultaneously.
Route diversity in the backbone network.
Redundancy at your site is of little use if both routes converge on the same path ten kilometers down the line. Ask any provider to show you the physical paths, not just a logical diagram. Redundant backbone networks turn a fiber outage into a rerouted packet, rather than a halted operation.
An SLA Tailored to Your Risk Profile.
With your annual revenue figure in hand, you can decide which locations warrant a 99.95% uptime guarantee and which can operate with a lower one. It’s a case-by-case decision, not a one-size-fits-all rule, and this keeps the budget justifiable. Clear contracts, transparent SLAs, and metrics aligned with the actual business impact make all the difference.
Where does Flō come in?
Flō Networks operates a private fiber network throughout Mexico and the U.S., built for operations that cannot tolerate the downtime associated with a low-quality connection. Dedicated Internet Access offers guaranteed availability of up to 99.95%, symmetrical speeds, and 24-hour performance visibility, and can be designed with physically diverse routes that the previous calculation will surely require. For traffic between locations, Private Networks keep your critical operations completely off the public internet.
For 25 years, more than 2,000 organizations have operated on this network precisely because their outage calculations would not tolerate any less availability.
Do the math and make decision-making easier
Take a recent outage, fill in the four categories, and calculate an annual average; then compare that result to the uptime guaranteed by your current contract. If the exposure exceeds the cost of fixing it, you already have your business case, in the only language a budget committee understands.
Compare your figure to a service built to support it: discover Dedicated Internet Access with up to 99.95% guaranteed availability.