“How much should I be spending on my company’s IT?” This question comes to us all the time from people we talk to. They want to know if they’re spending too much or too little. Are they wasting their dollars? Well, the right amount to spend varies depending on your revenue and size.
A recent report by Gartner has companies spending about 2.3% of their revenue on IT but doesn’t differentiate based on company size. Another report by ROI consultancy firm Ailnean Inc. compared publicly traded companies on success measures and the amount they spend on their IT. While they found small businesses spending a bigger percentage of their revenue on IT than large corporations (6.9%, compared to 3.2%), they also discovered that the most successful small businesses were a little more conservative in their IT spend.
How much to spend on your IT
Even if you’re a small business, spending under 5% of your revenue on IT expenses is perfectly adequate. At a minimum, you should be spending at least Gartner’s recommended amount of 2.3%, perhaps a couple of percentage points more, depending on what you want to achieve over the coming years.
So, what does that look like compared to your last year’s budget? It’s possible you’re skimping on something that could come back to haunt you.
Regardless of whether you’re too high or too low in the amount of revenue you’re spending on IT, you need to make sure you’re spending your IT budget on the right things. Some investments are a waste of money and aren’t what your business needs to be focused on.
What kind of IT spending works best for your company?
You need to know what makes sense for a fixed, monthly operating expense and what makes sense for capital expenses. It’s helpful to forecast the capital expenses so you can plan for them. A managed IT services provider should be a partner in figuring that out.
Here are four things we look at to make sure our clients are spending their IT budget wisely:
1. Planning for software and equipment life cycles. Just because a computer is running doesn’t mean it’s good to go. Right now, computers running Windows 7 are going to need Windows 10 by January 2020 – that’s a little more than 2 years to upgrade desktop systems in your company, or they’ll be at risk for security vulnerabilities and breakdowns that cost you time, money and frustrations. Knowing things like that well ahead of time and planning for it allows you to allocate your budget more effectively.
2. Implement solutions to handle your future growth. You may not even have growth in the number of employees, but the technology demands on your company will continue to evolve. An increased demand on internet bandwidth happens to everyone as part of the digital age we live in. Trust us, nothing is worse than capitalizing a project and having to completely redo it 2 years later. Everything is in a state of exponential growth. You need a forward-thinking IT partner to avoid the bottleneck that can create.
3. Making technology work better. It might be that you need a new firewall to better prioritize VOIP traffic over internet traffic or you might need to upgrade your internet connection to better support your cloud solutions. Demands on your system are only growing, even if the user experience feels more simplified.
4. Make technology scalable. Doing so allows room for growth at predictable costs. This is especially true if you want to leverage cloud computing for your business. For instance, our EmailAssurance is the same product whether you have 5 or 500 mailboxes, and you pay for only the mailboxes you are using.
The bottom line is, if you’re not budgeting at least 2.3%, you’re not spending enough on your IT. To make the most of that budget, you must spend it wisely, and that requires the expertise of a managed IT provider to make sure you don’t waste your hard-earned revenue on tech junk you don’t need.