How Much to Budget for IT, Part 1

Get ahead of the curve with a realistic IT budget

Did you know most of your competitors aren’t creating smart IT budgets right now?

IT budget
Piggy bank on a book

We’ve found that it’s the norm for technology-dependent businesses (and businesses are almost universally technology-dependent) to leave their IT expenses up in the air until an emergency arises. Then they take drastic measures and open new lines of credit to patch up the problem as they wait for the next IT failure.

This lack of foresight costs businesses big money.

In fact, Southwest, British Airways, and Delta Airlines all recently had massively expensive unexpected computer failures — with Southwest’s failure adding up to an estimated $177 million in lost revenue, and Delta’s possibly reaching the $150 million mark.

You can’t afford to miss the mark with your IT budget, even as a small business.

Your success this year hinges on creating a good IT budget

Before we get to the down and dirty of how much to set aside for your IT budget, here’s a look at the cost of not making a realistic IT plan for the coming year:

  • Downtime
  • Requiring a new credit card to purchase emergency replacement equipment
  • Emergency equipment purchases (these are just as expensive as budgeted purchases, but without the benefit of researching the best fit for your business)
  • Employee morale
  • Problems associated with aging equipment (system vulnerabilities, slow processing, incompatibility with new software)

Get the advantage over your competition.

Look ahead and prevent some serious emergency IT headaches and extra expenses with a proactive IT budget.

Change the way you think about budgeting for IT

It can be discouraging to set aside a new chunk of your annual budget toward IT expenses, especially when you may not see immediate benefits.

IT budget
Man on his phone pointing to a computer screen

But I want to challenge you to try on a different perspective:

Rather than resenting an additional expense line for your business, consider that technology expenses are just an unavoidable part of the cost of doing business these days.

It’s like paying the electricity bill.

Your business would not be where it is today if you hadn’t invested in and embraced certain technologies and equipment along the way.

And I guarantee that when you have a good IT budget and utilize it well, that investment will be a central part of your business’s growth.

The nitty gritty: How much should you put aside for an IT budget?

The rule of thumb is to allocate 3-4% of your annual budget for IT expenses.

This amount is generally able to cover:

  • New equipment
  • Depreciation
  • New and updated software
  • IT services

You might be surprised that we, an IT company, didn’t suggest a higher percentage.

Actually we never seem to have clients go above 4% with a planned budget.

When you plan ahead to refresh your equipment and software at regular intervals, and partner with a good IT company, you really will save money in the long run — and you’ll maximize your efficiency.

While we’re talking about budgeting for updated equipment …

IT budget
Piled up old computer set

In case it stresses you out to imagine sorting through all your old hardware and deciding what needs to be replaced, you need to know it really doesn’t need to be a huge effort to gather inventory on your aging equipment.
There are software agents like the ones we employ at Varay who monitor and track when equipment comes up for renewal.

With today’s technology, knowing when you’re due for updates shouldn’t rest on memory or diligence, but on simple, instantaneous inventory tracking and reports.

But we can talk about that more in an upcoming post, “How Much to Budget for IT, Part 2: The Hidden Cost of Old Computers.”

How should that 3-4% be spread out across your IT needs?

As nice as it would be to be able to give you that answer here and now, that’s really a conversation we should have in person. When your IT budget is customized to your business’s needs, you can make the most of it and grow into the coming year.

But we can give you a good idea of what your needs are with a quick, free scorecard based on the information you put in about your business’s current IT situation.

Armed with that information, you’ll have a better idea of how to allocate your IT budget, but we also look forward to the opportunity to sit down in person and help you create the ultimate IT budget for your business.

Contact us today to set up a free visit to determine your IT score and talk about a customized IT budget.