What Should IT Cost?

In technology there is a never-ending march towards smaller, faster, easier, better … and any small or midsize business owner knows first-hand that there are never-ending, real constraints on available capital. So what should IT cost?

According to Gartner, spending in the small to midsize markets will increase at 3.6% /year through 2017, bringing the total to over $1 Trillion by 2017 in annual spend. But what most business managers and owners really need to know is what the right amount should be for their specific, unique and dynamic businesses.

Here are the major variables:

• Industry*
  • Regulatory environment
  • Competitors (if you mostly compete with large enterprises you should invest more)
    • *Despite this, IT spending is leveling between industries, as technology becomes one of the best ways to create leverage.

• Company Culture- Do you promote “doing it the way you’ve always done it” or are you willing to invest to automate?
• Ambition for Growth- Sound technology is a prerequisite if you are planning on growing your business.

CIO magazine reported in their Annual State of the CIO report in 2013 that the average technology spend was 5.2%. As a rule of thumb, most research suggests that companies on average spend between 4 to 6% of gross revenue on technology.

Here is a good report on the matter from a firm called Structurepoint: http://structurepoint.com/it/structurepoint-it-spending.pdf

What services does this percentage include?

• Ongoing IT Services contracts or personnel salaries
• Hardware, software and network component purchases
• Cloud or hosted services
• Telco
• Internet and data
• Mobile devices and contracts
• Communications systems
• Surveillance and security systems

So for an average company creating about $5 million per year in revenue, the typical spend for all of these services should be between $200,000 and $300,000. This would equate to between $16,000 and $25,000 per month on average in IT spending. For many companies, this may sound high, but this only serves to highlight the point that many bigger competitors may be investing in technology in ways that allow them to grow faster than you.

The important thing for business owners to remember is that spending the minimum amount on technology is no longer something to brag about. Spending is ramping up significantly in technology and competitors are creating levels of sophistication that will help them to outpace your growth.

When you are ready to get your business ahead, contact Upward Technology to create your budget and road map for growth.