Technology is essential for business success, but IT budgeting can feel like guesswork. How much should you spend? Where should the money go? Here's a practical guide to IT budget planning for small businesses.
How Much Should You Spend on IT?
Industry benchmarks suggest:
- -**Overall IT Spend:** 3-6% of revenue for most small businesses
- -**Per Employee:** $3,000-$6,000 annually including all IT costs
- -**Managed Services:** $100-$250 per user/month for comprehensive support
These numbers vary significantly by industry. Healthcare, finance, and professional services typically spend more due to compliance requirements.
Breaking Down the IT Budget
Hardware (25-35% of IT budget)
Computers and Laptops:
- -Plan 4-5 year replacement cycles
- -Budget $800-$1,500 per business laptop
- -Include docking stations, monitors for office workers
Servers and Infrastructure:
- -On-premises servers: $5,000-$20,000+ depending on specs
- -Replace every 5-7 years
- -Consider cloud alternatives
Network Equipment:
- -Firewalls: $500-$3,000+ for small business
- -Switches: $200-$1,000 per unit
- -Wireless access points: $200-$600 each
Software and Subscriptions (20-30%)
Core Business Software:
- -Microsoft 365: $12-$22 per user/month
- -Line of business applications vary widely
- -Accounting software: $20-$150/month
Security Software:
- -Antivirus/EDR: $3-$10 per device/month
- -Email security: Often included with M365
- -Backup: $5-$20 per server/month
IT Support and Services (25-35%)
Managed Services:
- -Comprehensive support: $100-$200 per user/month
- -Includes monitoring, patching, help desk
- -Predictable monthly costs
Break-Fix Support:
- -Pay as needed: $100-$200/hour
- -Unpredictable costs
- -Reactive rather than proactive
Project Work:
- -Migrations, upgrades, new implementations
- -Budget separately from ongoing support
Security (10-15%)
Essential Security:
- -Multi-factor authentication (often free with M365)
- -Security awareness training: $3-$5 per user/month
- -Vulnerability assessments: $500-$2,000 annually
Advanced Security:
- -Managed detection and response
- -Penetration testing
- -Compliance audits
Reserve Fund (5-10%)
Unexpected Expenses:
- -Emergency repairs
- -Unplanned replacements
- -Security incidents
- -Business opportunities requiring quick IT response
Building Your Budget
Step 1: Inventory Current Spending
- -Hardware purchases
- -Software subscriptions
- -Support contracts
- -Internet and telecom
- -One-time projects
- -Employee time spent on IT issues
Step 2: Assess Current State
- -Age and condition of hardware
- -Software currency and licensing
- -Security posture
- -Known issues and pain points
- -Upcoming end-of-life dates
Step 3: Identify Needs
What needs to happen this year?
Required:
- -Replace failing/unsupported equipment
- -Address security gaps
- -Maintain compliance requirements
Important:
- -Improve reliability
- -Increase productivity
- -Reduce operational friction
Nice to Have:
- -New capabilities
- -Process improvements
- -Technology upgrades
Step 4: Prioritize
- -Business impact
- -Risk of not doing
- -Cost and complexity
- -Dependencies
Step 5: Build the Budget
- -Ongoing operations (support, subscriptions)
- -Planned replacements
- -Security improvements
- -Strategic projects
- -Reserve fund
Cost Optimization Strategies
Managed Services vs. Break-Fix
Managed Services Advantages:
- -Predictable monthly costs
- -Proactive maintenance reduces issues
- -Included support hours
- -Strategic IT guidance
When Break-Fix Makes Sense:
- -Very small organizations (under 5 people)
- -Simple IT environments
- -Strong internal IT knowledge
Cloud vs. On-Premises
Cloud Benefits:
- -Lower upfront costs (OpEx vs. CapEx)
- -No hardware maintenance
- -Scalability
- -Automatic updates
On-Premises Benefits:
- -Lower long-term costs for stable workloads
- -Data control
- -No internet dependency
- -Predictable performance
Hybrid Approach: Many businesses benefit from a mix—some workloads in cloud, some local.
Standardization
- -Same computer models (easier support, bulk pricing)
- -Consistent software stack
- -Standard configurations
- -Documented procedures
Right-Sizing
- -Match computer specs to actual needs
- -Right-size cloud resources
- -Review and eliminate unused subscriptions
- -Consolidate tools where possible
Common Budgeting Mistakes
Mistake 1: No Budget at All
Flying blind leads to reactive spending and missed opportunities. Even a rough budget is better than none.
Mistake 2: Only Budgeting for New Purchases
- -Ongoing subscriptions and renewals
- -Support and maintenance
- -Training
- -Security
Mistake 3: Ignoring Security
Security is not optional. Budget for it or budget for the breach.
Mistake 4: No Reserve Fund
Something will break unexpectedly. Plan for it.
Mistake 5: Set and Forget
Review your budget quarterly. Adjust as needs change.
Sample Budget Breakdown
For a 25-person company with $3M revenue:
Annual IT Budget: ~$100,000 (3.3% of revenue)
- -Managed IT Services: $36,000 ($120/user/month)
- -Microsoft 365 Licensing: $4,500 ($15/user/month)
- -Cybersecurity Tools: $6,000 ($20/user/month)
- -Hardware Refresh: $15,000 (5-6 computers, network updates)
- -Internet/Telecom: $12,000
- -Software Licenses: $10,000
- -Security Training: $2,000
- -Projects/Improvements: $10,000
- -Reserve Fund: $4,500
Get Help With Your IT Budget
Not sure how much to budget or where to allocate? We help businesses nationwide plan effective IT budgets that balance cost, security, and productivity.
Contact us for a free consultation. We'll review your current spending and help you build a budget that makes sense for your business.