How Much Should Companies Spend on IT?

There is no straightforward answer to how much a company should spend on IT. Every organisation is different, and the amount of money you should allocate to IT will vary depending on the size and complexity of your business. To help you out, we’ve compiled a few simple tips to keep in mind when creating your IT budget.

Use Industry Benchmarks as a Guideline

The common advice for Australian businesses is to spend around 6% of their total revenue on IT. However, this number can vary depending on the nature of your business. Financial services companies are likely to spend more on IT and data security because they’re often a prime target for cyberattacks. Meanwhile, small-scale retail stores may not require as much investment in IT as point-of-sale systems and perhaps a basic website.

If unsure where your business falls, research industry benchmarks like Deloitte’s annual reports and IT expenditure forecasts. These can give you a general idea of how much companies in your industry should set aside for IT spending. According to Deloitte, for instance:

  • Banks spend 10.14% of their revenue on technology.
  • Healthcare organisations invest 5.31% on average.
  • Construction companies set aside only 2.15% of their income for IT.

Of course, these figures aren’t set in stone; they’re merely a starting point for creating your IT budget. Your company’s unique circumstances can significantly affect how much you should be spending.

Define your IT Needs

Evaluate your company’s existing IT infrastructure and ask yourself if it’s sufficiently supporting your operations. For all you know, your network, hardware, or software are in dire need of an upgrade because they’re hindering productivity.

You may even have particular business goals and initiatives requiring considerable IT investment. For example, if you plan to optimise hybrid work arrangements for the next five years, you’ll need to budget for solutions like virtual private networks and cloud-based collaboration tools.

Make Room for Hardware and Software Renewals

When budgeting for IT, track hardware warranties and software end-of-life support dates. Server and computer hardware usually have a warranty of three to five years, in which the manufacturer will repair or replace defective parts for free. Conversely, some software products have end-of-life support dates. Microsoft, in particular, provides support and updates for up to 10 years after a product’s initial release date.

After hardware and software expire, your company will have to troubleshoot any technical problems on your own or purchase extended support from the manufacturer. These options will cost more in the long run, so you’re better off upgrading your hardware and software. Set aside a portion of your budget for renewals a year before these products are scheduled to expire. This will give you ample time to research new devices and programs, compare prices, and make an informed decision.

Consider your Operational Expenses

Your IT budget isn’t just about the big-ticket items like new hardware and software. Don’t forget to factor in the costs of maintaining your infrastructures, such as data backups, cybersecurity, and system updates. Utility costs are also associated with running your IT systems, such as electricity and cooling. These monthly fees often make up a significant portion of the IT budget, so ensure you have accurate monthly and annual expense projections.

If you partner with a managed IT services provider (MSP), you could expect to pay a monthly fee for system maintenance and security services. On the other hand, if you’re keeping things in-house, you’ll need to factor in the salaries of your technicians and the cost of any training they may require.

Customise IT Budget Allocations 

Every business portions its budget for different departments, projects, and initiatives at the beginning of every financial year. The same goes for IT. Ideally, you should split your budget into core components like:

  • Mission-critical systems – basic maintenance, support, and upgrade costs for your current IT infrastructure
  • Innovation – investments in cutting-edge technologies, such as business intelligence software, mobile device management, and cloud services
  • Cybersecurity – expenses related to data protection, such as threat prevention strategies, incident response, and security training
  • Business continuity – costs associated with implementing backup data solutions and disaster recovery plans

Depending on your company’s priorities, you can adjust the percentage of your IT budget allocated to each component. If you have cloud migration plans shortly, you may want to allocate a higher percentage of your budget to innovation investments.

If you need help developing an IT budget, Empower IT can assess your business needs and create one that works for you. Contact us today for a free consultation.