How much should your organization be spending on IT? That is a topic that always comes up in a discussion, and the opinions are varied. But rather than depend on opinions, the best place to look is to the companies that are succeeding with IT spending and see what their trends look like!
IT spending from the perspective of annual revenue
An Alinean report answered the spending question by first breaking companies into business size by revenue. A small company was under $50 million annually. A medium-sized company was between $50 million and $2 billion annual revenue. The findings based on that were:
- Small and medium-sized companies often outspend larger ones. The average small company spends 6.9% of revenue on IT. Midsized companies spend 4.1%. Larger companies spent a miserly 3.2% of revenue.
- Midsized companies spend $13,100 per employee annually on IT. Large companies spend $11,580 per employee.
Based on these percentages, if you are a small company making $1 million in revenue, then your IT spending should be around $69,000 annually on revenue.
IT spending from the perspective of employee size
Another survey from Spiceworks based spending on business size as a function of employees. In their study they found the following:
- A small sized business (2-19 employees):
- Spent, on average, $2,770 per employee annually, or $230.83/mo.
- This includes Hardware, Software, Managed Service, vCIO services, and the Internet.
- A medium-sized business (20-100 employees):
- Spent, on average, $1,993 per employee annually, or $166.08/mo.
- This includes Hardware, Software, Managed Service, vCIO services, and the Internet.
If you have 10 people on staff you should have an annual IT budget of $27,700. If you have a staff of 35 you should have an annual IT budget of $69,755.
What about NPOs?
The trend for NPOs follows much of the same numbers as above. Based on an article by BizTech, the data is broken out by per employee cost. They found:
- Small NPOs (less than $1 million on total spending) spent about $2,127.45 annually per staff member. As a percentage of spending, IT budget was at 13.2%.
- Medium NPOs (between $1 million and $6 million on total spending) spent between $3,468 and $5,016 annually per staff member. As a percentage of spending, IT budget was at 4.8%.
For an NPO spending a total of around $1 million dollars, you should be spending about $132,000 annually on IT needs!
What if you are not spending that much?
First, it is so important to be on the same page about one vital thing: all spending should be well thought out, in line with organizational goals, and move the key metrics of your organization in the right direction. If something does not fit those criteria, it should be passed over.
Now that we are on the same page on that very important issue, we can cover what not spending on IT needs can cause in your organization. I have narrowed it down to 3 major items:
- Disgruntled staff: If you have poor hardware that is not properly maintained, it just won’t work right. Constant downtime, long waits, and frustrating experiences in various tech spaces will not only lower output but also create a dangerous culture in your organization. Staff will feel unimportant, they will feel under-supported, and will not feel like the culture is to give your best!
- Undereducated staff: Programs like Managed Service and vCIO services allow for employees and C-level leadership to be able to understand concepts, software, and best practices that will empower them to perform at the highest capacity in their spot. Don’t let your staff waste time trying to figure out a new program or fix their own problems; that will not end well. Let the people operate in their passion and giftedness, and let those that are passionate about IT help with those IT problems and training.
- A large IT deficit to dig out from: Moore’s Law stated that processor speeds doubled every 7 years. That also tracked in the world of IT hardware for quite a while. However, Moore’s Law is now dead! IT advancements are moving faster than ever – and your organization needs to keep up. If you don’t keep up, there is no way your budget will support you trying to catch up – you will just find yourself out of the race.
You have worked too hard to create a great organization to just find yourself out of the race -so be sure to place more emphasis on your IT budget!
