What you are spending and what you should spend are likely two different things. Did you know that the average (across all industries and organization sizes) is somewhere around $8,500 per user per year? That number might come as a shock, but it may be even more shocking to discover what’s considered the “absolute minimum” to support basic IT. It’s a number that I recently heard referred to as “the IT poverty line.” The number is $3,000 per employee per year; below that, you are no longer able to provide core, critical, productivity and security services. And yet, small companies often struggle to afford that kind of money on technology, especially those under 25 employees.
Some of you may be wondering what the number is as a percentage of total revenue. Those stats are available in the source material referenced below but be careful about percentages – they only tell a part of the story. For example, if you have 2 companies that purchase the exact same set of tools, but one has 100 employees and one has 1,000 employees, that same exact tool set might be 10% of total revenue for the 100-employee company but only 6% of total revenue for the 1,000-employee company. The cost of some tools may scale with employee count, while other tools may use a different pricing structure, like a flat fee.
What Is Included in That Basic IT Budget?
This includes all general computing requirements across most employees at most businesses, things like:
- Laptop or desktop hardware
- Network switches and wireless access points
- Firewall
- Productivity software licensing (Microsoft 365)
- Helpdesk support
- System administration time
- Backups
- Monitoring and management software
- Internet service
- Phone systems
- Conference room hardware and software
- Basic security software
What Is NOT Included in That Basic IT Budget?
Any line of business or departmental solutions are generally not included in a basic IT budget. If your finance team is using Great Plains, Dynamics, Sage, QuickBooks, or some other similar financial package but no other department uses the software, that is a financial department expense and separate from this figure. If you have engineers that use AutoCAD to design parts to be manufactured, all the costs around that solution are NOT part of your basic IT budget…including the licensing, beefier workstations needed to run the app, and expanded storage and backups of those large files. Your company website and those associated services are typically a marketing expense, not an IT expense.
What Are the Gray Areas?
There are a lot of gray areas here - which is also the reasoning behind why these average numbers vary so widely. Remember, $3K per user per year is a minimum for basic services. That does not include any line of business software, hardware, or equipment. Below are a few examples of gray areas that might drive your IT budget up:
- The industry you’re in and the associated software/hardware for that industry might change these numbers. For example, in healthcare, it is very common to find the electronic health records cost in the IT budget - even though it would be more cleanly considered a “line of business” solution and NOT part of the IT budget. So, if your company is a healthcare provider, you might not be shocked to see IT budget averages in excess of $20,000 per user per year.
- You may have to think about these budgets differently depending on how your company is organized. The budget I am outlining might fit the description of your infrastructure and support teams inside your IT department, but your overall IT department might also have a compliance team or an application development team that shouldn’t be considered part of your basic IT budget by the definitions I just laid out.
- Some solutions just don’t fit well in other places. Often the c-suite has special needs but not a separate budget. You might have one or two employees with substantially more expensive workstations. If your firewall vendor has extra licensing costs for a VPN client to do remote access, you probably will put those costs into your IT budget with the firewall even though you might only have 10% of your users consuming that service. Most of these should be relatively minimal costs once you average it out and is therefore probably not a big deal. We’re talking about “margin of error” level numbers with most of these, but they can add up, so make sure you track and account for them properly. If the design engineers’ specialty hardware and software are costing whole number percentages of the company’s total annual revenue, you might want to think about separating that team’s budget out.
Some Of You May Be Starving for Details Right Now…
How did I get those numbers? How do you know you can trust them? What about data more specific to your industry or organization size?
In March of 2020, Flexera reported the average IT spend is between 4%-25% of total revenue, depending on industry. In their 2022 Tech Spend Pulse, Flexera reported that for companies with an employee count between 2,000-5,000, the average IT spend was 10%, while their larger counterparts spend a lower percentage.
Spiceworks’ 2024 State of IT Report also confirms that small business spends a significantly higher percentage of revenue on technology than their enterprise counterparts on hardware, productivity software, staffing, and cloud services.
In January 2021, Avasant reported that 2019 IT spending was 1-11% of a company’s total annual revenue depending on industry. That number reflected a range of $3K-$27K per user per year. Avasant’s later report has an overall average of 3% in 2022 with a per user spend at $9,647.
If you would like more information on IT budgeting, check out our previous blog Cyber Security Budgeting: You’re Probably Doing it Wrong. And as always, if you have any questions don’t hesitate to Contact Us!
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