How much should you spend on IT?

IT is a fundamental part of your business, and it can be a major part of your budget. However, that doesn’t mean you should overspend. The size of your company will impact how much you spend on IT, as well as other factors like your industry and your reliance on technology.

To determine how much you should spend on IT, first, let’s look at some data. 

Looking at industry figures

In a recent study, Deloitte Insights determined companies spend on average 3.28% of their revenue on IT. Further, they found that the financial industry spends the most at 7.16% and construction the least at 1.51%.

Other studies that were focused on the size of a business determined that SMBs usually spend more on IT as a percentage of their revenue versus a large company. Small businesses spend around 6.9% of their revenue on IT versus 3.2% for larger companies. That lower rate is mostly the result of scaling.

To look at it from a global perspective, it’s estimated that this year, IT spending by companies will increase to $3.8 trillion.

These are just some foundational numbers to consider when developing your budget. But one of the most important things to ponder when thinking about spending is the true cost of downtime.

The true cost of downtime

No small business wants to encounter downtime. If your operations come to a halt, you will quickly start losing money and it could ultimately cost you clients and your reputation. 

The cost of downtime varies across industries, but it will significantly impact any business, costing thousands of dollars per incident.

To keep this from occurring, you have to invest in a healthy IT infrastructure, which may mean partnering with an IT firm for managed services. In this way, you protect your business from downtime while also having a consistent cost every month for IT.

So, what should you spend?

Start off with a predetermined percentage of your revenue to determine your budget, such as the average percentage for your industry or business size. Also, consider these things.

What do you need from IT?

To know what to spend, you need to determine the expectations of your IT systems. Every organization is unique, as are your goals. Decide what the most important things are to you, with the most significant being minimization of downtime. 

You may also have objectives like streamlining operations, securing data, scaling storage, increasing productivity, and helping you run your business more effectively.

Your industry matters

As noted before, some industries spend more on IT than others, depending on things like regulations and business processes. Banks and healthcare have compliance concerns when it comes to data security so they’ll spend more than industries that do not.

You’ll need to figure in your industry-specific requirements as they relate to IT.

Understand recurring IT expenses

Like any budget, some costs are variable while others stay the same. The more predictable costs you have, the easier it is to budget. Here are some typical predictable IT costs:

  • License fees for software usage (this may increase as your headcount does)
  • URL registration and hosting
  • IT service provider fees
  • Wireless systems, such as cloud-based storage solutions
  • Internet fees
  • Compliance fees

These costs shouldn’t fluctuate too much so you can easily understand what you will spend for them now and next year.

Hardware costs are something that can be more variable but also, they’re not something you have to purchase on a regular basis. You should be able to keep most computers, laptops, screens, and smartphone devices for at least four to five years before needing to upgrade. Buy quality hardware so that it lasts longer. It may be more money upfront, but in the long run, you’ll save.

The bottom line is that you shouldn’t choose cheap options when it comes to your IT services. This is an investment in your company—one that could lead to greater growth.If you have questions about how to formulate your IT budget, contact us today to chat with one of our experts.