Purchasing and maintaining technology and IT for an organization can be among the most costly and challenging business expenditures you’ll face. Yet, it’s a crucial spend. From streamlining operations and improving productivity to driving revenue growth, IT adds business value to any company.
How much you need to spend on IT to maximize your technology ROI depends on a few key factors.
Common IT Expense Questions
Annual budget increases often seem unsustainable. The most common questions that arise are:
- How much should I spend?
- How do I justify and prioritize my spending?
- How do I compare that with others?
These questions don’t come without some variance depending on the business’s specific circumstances, but you can use some commonalities and benchmarks.
How to Establish a Technology Budget
The total spend on technology can vary widely, but a typical business spends 5-7% of their revenue to maintain current productivity. For example, most organizations with around 50 network users would spend between $6,000 and $8,400 per employee.
An additional 2- 3% is the budget range typically spent on cyber security. That has increased to 3- 5% as organizations have added additional capacity to defend and respond to those threats.
Don’t Skimp on IT Spending
A dangerous assumption is that spending less on IT will help your bottom line. Although tempting, buying less expensive hardware, extending technology life, or not having adequate resources can have a far more detrimental financial impact due to business disruption or reduced employee productivity.
Suppose you are spending more than 7%. In that case, you might be okay if those expenditures gain you some additional business leverage such as increased productivity, new service offerings, or customer retention. If that is not the case, look for opportunities to find expenses no longer needed or reduce IT staffing ratios in alignment with your business size. A simple benchmark for that is to take the number of IT staff divided by the total number of employees and multiply by 100. According to Workforce.com, a good staffing benchmark for organizations with fewer than 500 employees is 1:18.
With adequate planning and the use of benchmark standards, you can maximize the value of your IT spending.
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