How Much Should 501c3 Nonprofits Spend on IT Annually?

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Recently, we spent some time working through the key elements to consider when it comes to crafting your nonprofit’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?
 
This big-picture question is one that we strive to help all of our clients address throughout our relationship with them. It’s a complex subject without a clear-cut answer, but it’s one that is well worth the effort to evaluate—especially for an industry that tends to be quite cost-sensitive, and even more cost-conscious.
 
Below we’ll work through the main factors that will affect what your nonprofit’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 nonprofit’s technology each year depends on the following factors:

  • How essential IT is to your internal operations. Do you rely on a donor management system to keep your funding and constituents in order? Do you have a number of remote staff members who need access to your network in order to perform their daily tasks? Or do you not need much more than a functioning email system to keep the wheels turning?

  • How essential IT is to your external engagements. Do you interface with your donors and constituents through mass mailings? A software solution? Do you rely on a virtual store to receive your donations? Or does most of your interaction take place independent of any technology?

  • 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 organizational change you’re experiencing. Are you moving offices? Replacing a number of your staff members? Going through any kind of merger? The more flux your organization 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? How much data are you willing to lose? What’s your comfort level with equipment failure? 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 organizations with moderate technology needs and basic service expectations should prepare to invest 2-3% of their annual revenue in technology.
 
Those who are in the midst of significant change or growth, those with very low tolerance for risk, and those who rely almost exclusively on technology to achieve their mission are looking at closer to 4-5% of their revenue.
 
If you are spending much less than this, please proceed with caution—we have encountered more than a couple nonprofit organizations whose overall technology strategy was to spend as little as is humanly possible, and we saw them pay the price of “saving” in other arenas.
 
Off-brand workstations and servers will cost you less, but good luck finding manufacturer support in the event they malfunction. Forgoing helpdesk support will save you on your monthly invoice, but it will likely cost you hours upon hours in lost productivity. There is often a very clear give-and-take when it comes to technology, so be sure that you’ve made a thorough cost-benefit analysis before making sacrifices.
 
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.
 
That way, you’re free to focus on what really matters: your mission.

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