An IT Cost Comparison for Small Business and Nonprofits
We manage IT and security for close to 200 businesses and nonprofits in Maryland, DC and VA, but for the purpose of this article, we have no horse in this race. We are simply trying to answer the question we get with increasing frequency: “how much should I budget for IT and security?”
Like every business decision, there are tradeoffs. To provide some unbiased parameters, we have looked at research from multiple sources on average spending, by size and type of company, and the technologies considered most important. We also consulted our own IT engineers and security consultants to develop a checklist that will help you document and categorize your IT assets for more accurate budget projections and anticipated expenses.
How much are other organizations budgeting for IT?
There are three major approaches to benchmarking your IT spend:
- By size of company
- By industry sector
- By number of IT users
By Industry Sector: According to Computer Economics, the most accurate budget yardstick is industry sector, not company size. The consulting firm points out that a small bank may spend more on IT than a big construction firm.
Spending per User: Another way to calculate an appropriate IT budget is to look at spending per user. For example, the percentage of manufacturing employees using IT likely is lower than the percentage of employees at a law firm or nonprofit.
One-Time Costs: IT budgets will vary year to year, based on necessary upgrades or other one-time events. For example, Microsoft is ending support for Windows 7 and Windows servers 2008 and 2008 R2 in January, 2020, which will require affected organizations to upgrade their operating software and servers or use an outsourced IT provider to do it for them.
IT Spending by Size of Company
Industry resources report IT spending by percentage, by real dollars, and by type of hardware, software and support, making an apples-to-apples comparison difficult. We have shared some different statistics to provide a range of benchmarks.
- Collectively, firms with 1-99 employees spend between 2 - 8 percent of gross revenue for IT, with most firms falling in the 4-7% range.
- Financial firms spend the most, at well over 7 percent while manufacturing and construction spend the least at just 2 percent.
- A CompTIA survey of 650 business executives found the average IT budget for small businesses is between $10,000-$49,000 on the low end, or 7 percent of total revenue.
- Software provider Spiceworks found that companies from just 1-19 employees can spend more than $50,000 a year. This includes hardware, software, IT staff, consultants and IT services, but not cybersecurity.
IT Spending by Industry Sector
Ignoring the size of the company, Deloitte Consulting surveyed CIOs to identify overall spending on IT by industry:
Generally, IT spending data does not include spending on cybersecurity.
Top IT Small Business Priorities
Executives spend money on technology that supports business objectives. The CompTIA survey shows respondents are budgeting for hardware and software that helps them achieve the following strategic objectives:
Customer experience technologies that save time, provide better service, solve problems and improve communications, such as chat features and communications routing.
Worker productivity in the form of self-service platforms, tracking and collaboration tools, project management apps, advanced payroll technology, etc. that expand the ability to achieve more in the same amount of time.
Industry-specific applications that fit the software to the business instead of changing the business to fit the software improve functionality and processing time.
Core infrastructure, which runs your business, includes laptops, desktops, mobile phones, servers, networking equipment, storage and security software.
Operating process efficiency that enables standardization, efficient use of resources, increased capacity, and reduced errors.
Small Business Technology Budgets
These findings were similar to another survey of small and midsize businesses, conducted by Capterra.
What does an IT budget include?
In general, an IT budget should cover recurring costs for hardware, software, cloud/application subscription services, office equipment, cybersecurity, IT management and support, either internal or outsourced. IT should be viewed as an operating expense just like the electric bill; you can’t operate without it.
If you are moving to a new office, opening new offices, buying a new phone system or transitioning to the cloud, you may incur higher one-time expenses. Your IT budget should reflect your growth projections and strategic plans.
Do you know if your current technology is helping you compete or restraining your growth? If you can’t answer that question or just want a second opinion, arrange a meeting with our virtual CIOs, who assist clients in IT planning and budgeting.
How to make the most of your IT
Spending the right amount on the right IT not only can save you money but enable you to do more with the technology you have. If you’re in the mid-Atlantic region of MD, DC, or Northern VA, we’re happy to answer your questions.