Probably the first thing that any business owner asks when it comes to upgrading, updating, overhauling or otherwise needing to spend a ton of money on something that doesn’t necessarily seem so necessary is this: how much do I need to spend?

Internal IT teams, outsourced IT, ad-hoc IT consultancy, MSSP services – all things IT are no exception to the reality of business. That reality being one where you have to spend money to make money.

All business owners understand this self-evident concept. Just like a hot dog vendor needs hot dogs and buns, businesses of all kinds (including hot dog vendors these days) must spend on IT – if you want your IT to be resilient, secure and efficient, that is.

But how much should you spend on IT services? With so many different solutions and an incredibly steep learning curve of increasingly arcane technobabble, it can be almost impossible for laypeople to tell their AR from their elbow.

One thing’s for sure: more companies are spending more money on IT. IT analysts Gartner report an eye-watering $4.6 trillion in IT spending 2023 – an increase of 5.5% from 2022!

With that in mind, let’s look at some basic things that can affect how much you spend on IT services – in-house, outsourced and beyond – along with some general industry benchmarks that can help you nail down your resource allocation for maximum efficiency.

What Size Business Are You?

First thing – and most obvious – is your company’s size. How big is your business? Size is intuitive – you know how big you are in your industry, right?

A combination of your common sense with the basic financial indicators like revenue and market cap is a great place to start, but here’s some additional questions you can ask to help define your size (and therefore, your IT needs).

  • How many physical locations do you have?
  • Do you have an office space? Multiple office space?
  • How many people do you employ?
  • Are they in-office? Remote? Hybrid?
  • How many customers do you serve?
  • Are you local, regional or national?
  • How much data do you handle, cumulatively?

Your journey to answering the question, “How much should you spend on IT services?” must start by identifying your unique business needs, especially within the context of your market.

Economies of Scale and IT

Your size also dictates the percentage of your budget you set aside to your IT infrastructure – but perhaps not as you’d expect!

In general, the larger you get, the smaller percentage of your revenue you spend on IT. A study by Spiceworks found the following breakdown for businesses of small, medium and large size.

  • Small businesses ( < $5m in revenue) tend to spend around 6.9% of their revenue on IT.
  • Midsize companies ($5m-$20m in revenue) spend around 4.1% of their revenue on IT.
  • Large companies ( > $20m in revenue) spend around 3.2% of their revenue on IT.

You can see it right there – as you grow, you’ll need more IT, but it will become a smaller percentage of your IT. You can thank the economic concept of economies of scale for that – but as reliance on IT grows, how much will spending from these various companies grow?

Spiceworks reported the following growth metrics in their 2022 study:

  • Small organizations IT investments are up 3.5% across industries.
  • Mid-sized companies saw a 3.0% increase in IT investments across the board.
  • Large enterprises are increasing their IT investments by 3.2% YoY.

Check Your Competition

Besides your size, your industry is one of the biggest determining factors in how much you spend on IT. If you’re in government, for example, you’ll be spending way more on cybersecurity to protect sensitive data, while a mom ‘n’ pop sandwich joint might just need a few registers and versions of square.

Here’s how much the main industries in the US spend on their IT, as a proportion of their total revenue, according to Statista’s 2022 Analysis.

Healthcare – 5% of total budget
Finance – 10% of total budget
Retail/eComm – 7% of total budget
Software – 18% of total budget
Transportation/Logistics – 5% of total budget
CPG – 3% of total budget
Industrial/Manufacturing – 2% of total budget
Tech Hosting/Cloud – 11% of total budget

How much you spend on IT really does depend on your industry’s need for IT systems – any industry that is tech-reliant will obviously require more spend on tech-related items.

When it comes to hiring (or outsourcing), UK IT firm microbyte has a good general rule of thumb: 1 full-time IT expert for every 100 people. This person can handle 8-12 support tickets per day, which is about what you can expect from a company of 100 people. Always include manpower in your calculations!

In-House vs. Managed IT

Another facet of the “how much should you spend on IT services?” question lies in whether you’re outsourcing your IT or hiring an in-house team.

In our biased opinion, for 90% of businesses, it’s a no-brainer to hire out your IT services to a managed IT partner like us – unless you’re a multinational giant like Nestlé or you’re in the tech world where internal tech is literally your competitive advantage.

A lot of businesses think they should just hire someone full or part-time. But do you need an internal IT team? Or does it make more sense to hire out your very specific IT needs without the exorbitant costs of hiring an IT team?

An in-house IT team can provide personalized, on-demand support but with the very obvious downside that you have to pay for a salary, benefits, taxes, and so on – and that’s not including all the difficulty of finding the right person for the job in the first place.

Managed IT services are simply a better option for the overwhelming majority of businesses – objectively. Spiceworks Ziff Davis reports the simple act of outsourcing IT saved companies a stunning 40% in IT spending every year, when compared to internal teams.

Don’t Cut Corners on Your IT

When it comes to IT services, cutting costs might seem like an appealing option, especially for businesses trying to stretch every dollar. The reality is – with a few exceptions – that we rely on IT for every single thing we do in our daily lives. Leaving your IT to its own devices is not only ill-advised, it is an objective disaster waiting to happen.

A study conducted by the Ponemon Institute revealed that the average cost of an IT downtime event hovers around a staggering $8,850 per minute.

And that’s only the cost of your IT going down. It doesn’t even scratch the surface in terms of where IT investment really makes its money – by making every element of your business marginally more efficient.

It’s in this marginal improvement that the greatest advantages are gained. Make sure you commit fully to improving your IT systems at a cost that makes sense for you.

With all the options available to businesses of various sizes, there’s no excuse for you to not have an optimized IT infrastructure for a price you can afford.

Further Reading

IT Budgets: Traditional vs. Digital.
Global IT budget allocation in the finance sector.
The Cost of IT Downtime
The Real Costs of Outsourcing IT.
The Future-Proof IT Environment: What Does It Look Like And How Do You Get There?