Today, the average small business spends around seven percent of revenue on IT. If your business has $500,000 in revenue, that’s around $35,000 on technology.
The numbers go up as revenue increases. Businesses that make under $50 million tend to spend a larger percentage of their budgets on IT. They also tend to spend more per employee.
You might be wondering if seven percent is anywhere near enough. Sometimes, it feels like you need a budget worth millions to get anything done.
Studies have also shown that it’s less about how much you spend, and more about how you spend it. By learning how to spend your IT budget more effectively, you can stay competitive.
Are you making the most of your budget? Use our guide to see how you measure up and learn where you can make adjustments.
Link Your IT Budget to Your Goals
Some IT managers treat the budgeting process as a zero-sum game. They increase their budget beyond what they need so they can secure the largest amount of money. In the process, they take funds away from other managers.
Small business owners may not even have an IT department or a formal budget. IT expenditures are approved in conversation or justified after the money’s spent.
The point of a budget, though, is to reflect your strategy. Neither the budget-less small business owner nor the IT manager has a strategy.
Your IT budget should tie into your organization’s overall strategic vision. What goals does the business leadership want to achieve? What’s the vision for the future of the company?
If you want to grow revenue, you’ll need to consider how IT infrastructure will affect your ability to do this. If your current website is on servers that can’t handle more purchases, you won’t be able to grow online sales.
Technology touches every aspect of your business, from how you communicate to how you get work done. If you’re planning to grow, you need to be sure your infrastructure can keep up. If you want to cut costs, automation might help you get it done.
Consider the Human Aspect
An easy way to see how ingrained technology is in an organization is to ask how it’s helping or hindering people. Are your employees efficient at their jobs? Or are they saddled with administrative paperwork?
Technology could solve some of the issues your employees face on a day-to-day basis. Older technology could be holding them back.
Technology can also contribute to your employees’ engagement and job satisfaction. If your employees are saying they’re stressed and can’t get everything done, hiring may not be the answer. It might be time to look at technological solutions instead.
This human aspect is something that’s rarely reflected on an IT budget template, but it’s key. Adopting new technology or keeping an older system could impact on your bottom line.
Categorize Your Needs
Now you’re ready to take a look at the current costs of IT in your business. What are you spending, and what are you spending it on?
Chances are you have a few different types of IT expenditures. Some different types include:
- Run budgetary items
- Growth items
- Transformational spending
Run budgetary items are usually the most important. They’re the items you can’t operate without. They might include computers, particular software, or your database server.
These budgetary items differ from industry to industry. An engineering firm will have different tech needs as compared to an app developer.
Growth items are less important, but they keep your business moving forward. They include initiatives you take to improve your current capabilities. They also include things like new software to improve efficiencies or expand services.
Finally, transformational budget items focus on research and development. For an app developer, this might include designing and testing new apps. For an engineering firm, it could mean developing an interactive customer platform.
Deciding What to Fund
Once you’ve categorized your IT spending, it’s time to decide what to fund. Your run budget items are unlikely to be something you can scale back, especially if you want to grow.
Growth and transformational initiatives can usually be pared back. Ask yourself how well they fit with the business strategy and the company’s goals. Those that fit the best should be allocated more funding.
Stretching Your Dollars
All the budgeting in the world doesn’t solve what you feel is a fundamental problem. You have too many IT initiatives to choose from and not enough money to go around.
Categorization and prioritization can help you spend your budget more efficiently. How can you make your budget go farther?
One thing you should be doing is using an information technology budget template. The template can help you visualize your IT expenditures. It may even help you see where you can make improvements.
Put Outsourcing on Your Radar
You can also consider options like outsourcing. Many small business owners feel they can’t outsource because it costs too much. Take a moment and compare the costs of hiring more IT personnel to sending certain tasks out of house.
It might actually be less expensive to outsource. If you’re not sure about outsourcing, you can always consider IT consulting. Expert advice can help you make better IT decisions and achieve more efficient IT.
Another reason to consider outsourcing is that of the sunk costs of ownership. Yes, you can invest in a new server for your website, but would it be less expensive to get shared hosting instead? Outsourcing lets you take advantage of the latest technology without shouldering the costs.
Your IT Dollars Can Do More
There are ways to make your IT budget go farther. If you want to make sure you’re spending your IT dollars as efficiently as possible, talk to an IT support provider. They can provide insights into how you can get more out of your IT budget, no matter how big or small it is.