What is the Cost of Operational Downtime for Media Companies?

How much does downtime cost your organization? When a site or app isn’t functioning well, what is the expected impact on revenue, customer churn, and wasted marketing dollars? It may be an easy calculation for your organization, but there are a few nuances that should be considered.

Advertising Revenue

The simple calculation is based on your:

effective CPM * average ad avails per hour * number of hours of downtime = lost ad revenue

The nuances you may consider are peak times vs normal operating time. In addition to the traditional evening viewership peaks, lunchtime is a prime time for online and mobile viewing. A system issue during these times should account for the higher ad avails.

New Subscriber Revenue

Looking at:

Average transactions per hour * lifetime value of a subscriber * number of hours of downtime = lost subscription revenue

and provides a good baseline for calculating the cost of downtime.

Some prospective customers may come back and subscribe later, mitigating the lost subscriber revenue. Reviewing any relative bump in transactions in the hour or days following an operational issue can be factored into a clawback on the cost of operational downtime for your subscriber business.

Customer Acquisition Cost

Exacerbating the cost of downtime is your cost to acquire new customers or audience members. For an OTT business, adding the:

CAC per customer * number of lost transactions

to the lost subscriber revenue should provide a better picture of the financial hit.

Customer Churn

Every business has some customer churn. Asking customers as they cancel a subscription or pursuing a survey of past customers can give you an indication on the importance of a quality consumer experience as part of retention. Reducing the percent of customers citing system or playback issues as part of their reason for leaving can have a dramatic impact on the lifetime value of the customer.

Internal Opportunity Cost

Every system issue your team handles distracts them from their pursuit of the current project or objective. Accounting for this opportunity cost is fairly straightforward when the teams tracks their time via an agile project management system. You can ask team members to add in stories after an operational incident with their spent points or other time-equivalent metric. Or you can look at the total production from the team during an incident-free sprint and compare their productivity in sprints with system issues. Translating this into a dollar impact:

Hours spent on operational issues * (digital team’s total salary per month / total hours worked per month) = personnel cost of an operational issue

The indirect costs include the delays to current projects and the impact on morale as no one likes to clean up operational issues.

Plan for it

Operational and system issues impact every digital team at some point. Spending time in advance on a cost model can be a useful tool for evaluating vendors and setting priorities. A new feature or product may pale in comparison to the benefits of investing in systems and process that result in more operational uptime.

Reducing Operational Downtime

The mission of Wicket Labs is to:

To reduce the operational downtime of cloud-dependent systems, apps and sites.

Contact us to learn how API monitoring can lead to fewer system issues and a better consumer experience.


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