How Much Should You Budget For IT Spend?
How does a business budget for IT spend? The answer relies on a deeper, hidden question:
How well does a business want to run?
But, before we get into philosophy, let’s talk cold numbers. First, determine IT spend. The most common formula is to add up all expenses and divide by total business revenue:
Current IT Operational Expenses/Total Revenue = IT Spend
Here’s where many businesses trip up. IT has a lot of different costs. People know some and forget others until it’s time to purchase. That can blow your budget quick. Below are common costs people remember and others tend to forget.
Make sure your current IT operational expenses include all of these costs. Then, use the resulting number to compare with the bottom line. But, understand this: the formula doesn’t tell the whole story, which could cost you money in the end.
What businesses need to consider is context. As in, industry, users, and growth goals. Let’s talk about these factors.
Business Size & IT Spend, And Other Factors
Different industries have different IT spend. This chart from the Wall Street Journal and Deloitte gives an overview.
But numbers can be deceiving. What this chart fails to include is average revenue and number of employees. For example, a million-dollar construction company with only 5 employees may not need as much IT support as a 20-branch bank. Yet, their IT spend in hard numbers could be similar.
Remember, don’t use any number in isolation.
We make a distinction here to count users instead of company size. Why? Because it’s important to be as specific as possible when budgeting for IT.
Here’s a 2020 forecast from Computer Economics:
- Small businesses will increase IT budgets by 3.5%
- Mid-size businesses will increase IT budgets by 3.0%
- Large businesses will increase IT budgets by 3.2%
We only want to count the employees that actively use IT. Here’s a good reason why: in 2019, the average IT spend per user decreased by 7.5%. That’s important to note when calculating budgets.
#3 Growth Goals
Using the formula, Current IT Operational Spending/Total Revenue, presents a clear picture of Now. But, what about Tomorrow? Businesses need to account for growth goals — where they plan to be in 3, 5 and 10 years.
Here’s why: if businesses plan to grow, they should spend more now to prevent costs later on. A strong IT foundation will prevent an avalanche of problems as employees, technology and processes are added.
It’s not quick or cheap to expand IT quickly. It’s an investment to add hardware, software, personnel, cloud, etc., and hundreds of hours to set up.
That’s why strategic technology planning is so important. Businesses need to make sure their IT budgets account for future expenses.
The Surest Way To Predict IT Spend
These IT costs need context:
- Personnel support & expertise
- Hardware purchases, updates and replacements (think desktops, laptops, etc.)
- Software purchases, updates and replacements (think Office 365, Skype, etc.)
- Cybersecurity defense
- Data center expenses
- Disaster recovery
- Network (management, connectivity, etc.)
Any of the factors above have cheap, moderate and expensive options. It’s up to the business to decide what they can and can’t live with. More specifically, what they are and aren’t willing to risk.
So, how does a business safely budget for IT? Let’s remember the real question we saw at the start. Once this question is answered, it’s easier to determine a clear budget for IT.
The real question:
How well does a business want to run?
You get out what you put in. For businesses that want to run well and maximize IT spend, consider these questions:
- Do you have big growth goals?
- How long could you survive a cybersecurity-related shutdown?
- Do you want to be leading-edge in the market?
- Can you rely 100% on the IT you have now?
- Do you want to remove barriers to productivity?
- What value do you see in IT?
If a business wants to run well, IT has to run well and that costs money, But, once again, context is key. If your IT partner is ineffective, it doesn’t matter how much you pay them!
Don’t invest in a subpar MSP, your desired outcomes won’t happen. Instead, do some research on local IT providers, have a site visit, suss out their experience level. Make sure they value IT as much as you do.
If your IT dollars and cents aren’t making sense, we may be able to help. Give us a shout and let’s talk.
iVenture’s award-winning team delivers managed services, cloud and cybersecurity to Florida’s best businesses. With statewide coverage, our offices in Jacksonville, Orlando and Tampa make us your local IT partner. Whether you need end-to-end IT or a boost to your internal IT team, we’re ready. At iVenture, we give you more time to do what matters most.
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