What is a good benchmark for deciding how much to spend on IT for your business?
We have read the findings from leading IT research firms such as Gartner and Computer Economics and these are our main take-aways.
- Proportion of income. The general consensus is that businesses spend between 2% and 6% of their annual income on IT. Looking at it another way, Computer Economics tells us that the average cost per IT user in 2013 was $8,000. How does that compare with your business?
- Differences between businesses. IT budgets vary greatly depending on the size of business and the industry in which it operates. Small business tends to spend more as a percentage of income, as do the more IT dependent industries such as web, banking and finance. Large organisations tend to benefit from efficiencies of scale and industry sectors such as retail usually spend less than 2% of their revenue on tech.
- Where the money goes. No matter the company size or industry the majority of IT budget is spent on maintenance, upgrades, new projects, development and support. Hardware and software make up a surprisingly small percentage of overall spend (usually less than 20%).
You may use these statistics to benchmark your business but IT spend is not the most important gauge. The key is to be efficient with your IT budget and make sure you get the most out of your products and services. Quite often we will visit a new client that has made a lot of buying decisions without much due diligence and in some cases without consulting an IT expert. These buying decisions inevitably result in overspending on inadequate technology so my advice to you is to consult someone you trust before you continue investing in your IT.