Businesses often find it challenging to determine how much to spend on technology. After all, organizations vary in size and complexity, so their IT requirements also differ from one another.
It's also unwise to simply stick with the same IT budget allocation year after year since business needs and the economic environment change. In fact, despite the world economic slowdown, Gartner projects that worldwide IT budgets in 2023 will increase to $4.5 trillion, which is a 2.4% increase from 2022. Moreover, there may be new IT solutions that could give your company a competitive edge, so setting the same IT budget year in and year out could mean you’re missing out on the latest tech.
To help you out, we've compiled some useful tips for creating your IT budget.
Refer to industry benchmarks as a guide
On average, businesses spend 4–6% of their revenue on technology, but this figure varies among industries. Financial services firms invest heavily in IT security since they're often targeted by cybercriminals. On the other hand, a logistics company may need only a transport management system and a basic website.
To learn how much of their budget organizations in your industry allocate for IT, you can refer to Deloitte’s CIO Insider or Statista’s IT spending reports. For example, Statista found that in 2022:
- Financial services firms invested 10% of their revenue in technology.
- Retail and eCommerce companies allocated 7% of their revenue to IT.
- Healthcare organizations set aside 5% of their revenue for IT.
Take note that you should use these figures merely as a reference when budgeting for IT. Your company's particular needs should still be the main consideration for how much you should allot for tech expenses.
Establish your IT requirements
Assess the current state of your company's IT infrastructure and whether it is adequately supporting your operations. Your network, hardware, or software may need an upgrade if they're impeding productivity.
Your company may also have goals and projects that would need considerable investment in technology. For instance, if you plan to improve remote work security, you'll need to allocate funds for a mobile device management solution and a password manager.
Read also: Beware of these five common mobile security threats
Set aside funds for hardware and software renewals
When making your IT budget, make sure to check hardware warranties and software end-of-life support dates. Computer and server hardware manufacturers typically offer a warranty period of three to five years, during which they will repair or replace any malfunctioning parts for free. Software vendors like Microsoft, in particular, offer support and updates for up to 10 years after a product's initial release date.
After those expiration dates, your company will have to resolve hardware or software issues on your own or pay for extended support from the manufacturer. These options are more costly in the long run, so it's more economical to upgrade your tech. Be sure to allocate some of your budget for renewals a year before your hardware or software expire. This way, you have enough time to explore your options and compare prices to make an informed decision.
Account for operational expenses
Don't forget to consider the costs involved in managing and maintaining your IT infrastructure. This includes expenses related to data backups, cybersecurity, and system updates, as well as electricity and cooling.
If you have an in-house IT department, you'll also need to factor in costs related to the salaries, benefits, and training of your technicians. But if you work with a managed IT services provider (MSP) like Quicktech, then you need to pay only a fixed monthly fee for IT support and maintenance.
Categorize IT budget allocations
To better understand how you're spending your resources, it's best to split your IT budget into categories, such as:
- Mission-critical systems – expenses related to regular maintenance, support, and upgrade of your existing IT infrastructure
- Innovation – investments in the latest technologies, such as artificial intelligence, automation, and cloud services
- Cybersecurity – costs associated with safeguarding company data and IT systems, such as those for firewalls, antivirus software, incident response, and security awareness training
- Business continuity – expenses for deploying data backup and disaster recovery solutions
Depending on your business priorities, you can adjust your budget allocation for each category. For instance, if you want to move toward a 100% cloud infrastructure, then you'll need to dedicate more of your IT budget to innovation investments.
Quicktech can help you create an IT budget that’s aligned with your business goals and technology requirements. Book a FREE consultation with us today.