How Much Should Small Businesses Spend on IT Annually?


While associations tend to have very specific member management needs, and while law firms have equally as unique disaster recovery and document management needs, the over-arching needs of small businesses are far more fluid in comparison.
The good news is this: not only have we at Optimal served the small- to mid-sized business community for over two decades, but we've been a small business ourselves since day one. 
Recently, we compiled our experience in this arena to put together a list of the key elements to consider when it comes to crafting your small business’s IT budget. While this discussion digs into the nuts and bolts of what specific pieces combine to form a successful budget, it opens the door to another side of the conversation: when these pieces come together, what should your total annual investment actually look like?
Below we’ll work through the main factors that will affect what your company’s annual IT investment will look like, and what you should expect to see once all of the dust settles.

Key factors that influence the nature of your annual IT spend

The amount you want to invest in your company’s technology each year depends on the following factors:

  • How essential IT is to your operations. Do you rely on line-of-business applications to perform your daily tasks? Do your staff members need remote access to your network? Do you have a robust disaster recovery solution in place to protect your data? Or do you not need much more than a functioning file server to keep the wheels turning?
  • Your growth mode. Are you in a heavy growth mode? Steady state? Shrinking? As you could probably guess, growth translates to much heavier technology demands (and, by extension, larger expenditures). So does shrinking, though to a lesser extent.
  • How much change your business is experiencing. Are you moving offices? Replacing a number of your staff members? Going through a merger or acquisition (from either side)? The more flux your company is in, the more money you’ll have to put into your technology to get from A to B.
  • Your service expectations. Does your ideal IT scenario include a lot of hand-holding from your technology provider? Is it important to have a dedicated representative to oversee your account? Or are you willing to sacrifice overall service in the name of cost savings?
  • Your tolerance for risk. How long are you willing to go without functional technology in the event of a disaster? Hours? Minutes? How much data are you willing to lose? One day’s worth? Thirty minutes’ worth? Do you want to outsource all of this risk to a provider in the form of a fully-hosted solution? Across the board, lower risk equals higher investment.

As a benchmark, then, steady-state small businesses with moderate technology needs and basic service expectations should prepare to invest 3-4% of their annual top-line revenue in technology.
Companies who are in the midst of significant change or growth, those who have exceptionally low tolerance for risk, and those who rely almost exclusively on technology to get the job done are looking at closer to 5-7% of their revenue.
If you are spending much lower than this, please proceed with caution—there’s often a direct give-and-take when it comes to technology, and you may inadvertently be putting your systems at risk both in terms of security and efficiency.
This goes in the other direction, too—if you are spending much higher than this, and you are not intentionally and strategically leveraging your technology (to gain competitive advantage, for example), you may need to take a second look at where you’re putting your investments.
And, if it all just seems too much for you to work through on your own, look to getting some strategic guidance in whatever form is feasible. There are countless resources out there who can help get your spending and your technology on the right track.
Just ask.

Is your small business struggling to get its IT spending in order? Looking for  some guidance? Let us know--we can help.