How much should my business spend on IT?

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As technology becomes a more significant part of our daily lives, it also becomes increasingly important in business. But how do you know if you’re spending too much or too little on technology for your organization?

Spending too much on technology and IT infrastructure can decrease your profits through unnecessary spending.

However, investing too little in IT can create frustration and additional, unanticipated expenses.

In both situations, the thing that’s supposed to give you an advantage instead becomes a burden.

Solid IT planning, budgeting, and strategy can help you determine the best IT investments for your business to prevent unnecessary losses and frustrations while building productivity and profits.

WEBIT Services has developed effective IT strategies and solutions for over 25 years, serving hundreds of clients.

As an IT provider, of course, WEBIT Services believes good technology and good IT management can significantly contribute to business success. However, we recognize that this may not be the case for every industry or individual business.

You know your business and its needs best. We hope this article brings some insight, particularly if you are currently dissatisfied with your IT investments.

By the end of this article, you will know the baseline percentage for IT spending, and you will have seven self-assessment questions to help you determine if your current IT budget is helping your business. You will learn the next steps for evaluating your IT investments from there.

How much should be invested in IT infrastructure?

The truth is that it depends both on your individual business and your industry. A good starting point is for 5-8% of gross revenue to be invested back into your business technology.

Of course, your industry may dictate lower or higher IT spending. For instance, if you are in a regulated industry with IT compliance standards, you may invest more than 8% in technology to ensure you are using compliant systems.

What’s included in IT infrastructure?

How your business defines “technology” or “IT” can also affect your budget.

For example, many manufacturers now use A.I., robotics, or both for production and may include these resources as IT. As you can imagine, the price of A.I. and robotics would significantly increase your expected investment budget. In fact, including such specialized technology may increase spending from 8% of gross revenue to 30%.

For the sake of this article, we will be discussing investments solely focused on IT infrastructure and the services covered by managed IT service providers. In the above example, IT providers do not cover robotics, which requires a different specialist.

IT infrastructure includes:

  • Hardware
  • Software
  • Software licenses
  • Cybersecurity systems
  • Data storage systems
  • An internal IT department or external IT provider to help manage and maintain these systems.

7 Questions to ask to evaluate your IT spending

As you look at your business results from the last year, ask yourself, “Did we have a good year, and did our technology contribute to that success?”

If your answer is “yes,” that’s an excellent indication that your IT investments are sound and positively influence your business.

If your answer is “no,” it may be time to take a closer look at the effectiveness of your IT investments.

Here are seven self-assessment questions that can help you determine what investments may need examination or change.

1. How are you measuring employee productivity?

Are you examining systems, processes, and technology to see how they improve or impede productivity? Improved productivity and efficiency often equal increased profits.

Is your technology increasing productivity (and, therefore, profits) or hampering it?

Quality IT providers are constantly looking for ways to improve productivity using technology. They will evaluate current processes to see what can be improved through automation or better technology.

For instance, a provider may notice that employees must regularly interrupt their workflow to walk across the office to the communal printer. Little trips back and forth add up over time.

A good IT provider and strategist may recommend using paperless programs to decrease printing time and materials.

2. Are IT concerns addressed proactively or reactively?

Businesses and IT support tend to address IT issues either proactively or reactively.

Proactive IT support often focuses on strategy and prevention, while reactive IT support focuses on solving problems as they arise.

Proactive IT support will examine systems, hardware, and software for potential risks and weaknesses. Once these are identified, solutions and budgets are established to address risks before they become crises.

Because reactive IT support only addresses concerns once they are causing problems and impeding productivity, it does not save or plan for expenses. Over time, reactive support costs more money than proactive support.

3. Are you using IT strategies like an IT roadmap?

Solid IT strategies can help make a difference in any business. It will help you analyze your IT systems, identify and address risks, create an IT-specific budget, and implement realistic and practical solutions.

The IT roadmap is an essential element of IT strategy. Your roadmap helps outline quarterly and annual objectives for your business’s IT systems. Your IT strategist can help you evaluate how your technology can help you meet your business goals.

If your goals are not being met, there may be a breakdown in communication or expectations that needs to be addressed.

Your provider should meet with you quarterly to discuss how your IT infrastructure is or is not helping your business meet its objectives.

4. How many unplanned IT expenses have you had in the last year?

In the last year, have you had a knock on your door and heard, “Boss, I need another $10,000 to fix this IT issue”? If so, how many times have you had that conversation?

Frequent, unplanned IT expenses result from poor planning or a breakdown in communication with your IT provider or internal IT department.

With a proactive IT partnership, IT budgets should be set in advance so that there are few to zero unexpected IT costs.

5. How much downtime did you have this year?

If you had downtime, how much time was it? How quickly and effectively was the problem addressed?

If you didn’t have any this year, what would happen if a critical infrastructure system failed? How long would it take you to recover? How much money would you lose in the process?

Good IT strategy examines your level of acceptable IT risk, in this case, the amount of downtime you can afford in the face of system failure. Would it cost your company more to invest in IT and address risk? Or would it cost you more to accept the risk and stay the course?

For some businesses, the cost of downtime is greater than the cost to invest, so they choose to address the risk by purchasing new hardware, software, or systems.

For others, the cost of updating a major IT system is greater than the cost of the risk, so they choose not to invest.

6. What would happen if a client requested a cybersecurity audit?

Do you think you would pass if a client or regulatory body requested an audit of your cybersecurity systems?

Do you have cybersecurity systems and practices in place that protect your data?

Are you actively running quarterly risk assessments to identify and address system weaknesses? Are these results a part of your IT roadmap and overall IT strategy?

Poor cybersecurity systems and practices can lead to immense financial loss and damage your business’s reputation. Cybersecurity should be a significant part of your IT strategy and be part of your IT investment if needed.

7. Are you receiving quality IT service and expertise relative to the price you’re paying?

This question can be tricky and requires a close look at costs, services received, and your business needs.

Depending on the size of your company, you may want to evaluate the affordability of an external IT provider rather than hiring internal IT professionals.

Of course, using an internal IT department may be a better investment if you are a large corporation.

However, smaller companies (specifically those with under 100 employees) may find that hiring an external IT provider provides you with more expertise and specialization for a lower annual cost than the salary of two internal IT employees.

To discern if hiring an external IT provider is right for you, you should consider:

  • The hours of IT helpdesk availability vs. the hours of availability for an internal IT employee
  • The specialization, experience, and expertise of internal IT employees vs. the team of an IT provider.

It is important to note that these factors do not always mean an external provider is better for your company, and not every provider is a match for every company. IT support and services are rarely a one-size-fits-all package.

IT strategy and support should be a partnership with your business, ready to communicate and work with you to achieve your goals. This can be achieved through either an external or internal IT team.

But it is vital to examine the effectiveness of the partnership and the services received for the cost of the investment. If you are paying a high price for an internal team but find you’d receive better service for a lower price with an external provider, that may be worth investigating.

Next steps to determine how much you should invest in your IT infrastructure

IT investments are as unique as the businesses that make them.

An excellent foundational cost for IT investments is roughly 5-8% of gross annual income. However, this may vary based on your industry, individual business, and definition of “IT.”

If you are dissatisfied with your current IT investments, you now have seven questions to consider:

  1. How are you measuring employee productivity?
  2. Are IT concerns addressed proactively or reactively?
  3. Are you using IT strategies like an IT roadmap?
  4. How many unplanned IT expenses have you had in the last year?
  5. How much downtime did you have this year?
  6. What would happen if a client requested a cybersecurity audit?
  7. Are you receiving quality IT service and expertise relative to the price you’re paying?

Answering these questions can help you determine if your current investment strategy is effective or if it needs examination.

To help create a better IT investment plan, you can speak with your IT provider or internal IT team to see if they can help you answer the seven questions, examine system weaknesses, and suggest improvements.

If your IT provider is unwilling or unable to offer better strategies, it may be time to look for a new provider.

For over 25 years, WEBIT Services has helped local businesses develop effective IT strategies and budgets to build profit and minimize stress.

If you are looking for a new IT provider, schedule a free 30-minute consultation to see if WEBIT can help.

If you aren’t ready to make a commitment but would like to learn more about IT strategy, we suggest the following articles: