How much should your business spend on IT next year?
It is a deceptively difficult question.
Ask three businesses employing 30 people and you could receive three completely different answers.
One might spend very little because it keeps computers until they fail and calls an IT company only when something breaks.
Another might have predictable monthly costs covering its Microsoft licensing, support, cybersecurity, backups and device management.
A third might be replacing ten laptops, moving office and implementing a new business system next year.
All three employ the same number of people.
Their IT budgets could look completely different.
So rather than starting with an arbitrary percentage of turnover, there is a much more useful way to approach the question:
What technology does your business depend upon, what does it cost to manage properly, and what will need replacing or improving during the next 12–36 months?
Let us break that down.
IT is not just the IT support bill
One of the easiest budgeting mistakes is to look at the monthly invoice from your IT provider and call that your “IT budget”.
In reality, technology expenditure is spread across numerous areas.
A typical 25–50 person business might be paying for:
- computers and laptops;
- monitors and accessories;
- Microsoft 365 licensing;
- IT support and management;
- cybersecurity;
- data backup;
- internet connectivity;
- Wi-Fi and networking;
- business mobile phones;
- specialist applications;
- cloud services;
- printers;
- servers or cloud infrastructure;
- websites and domains;
- telephone systems;
- cybersecurity training;
- hardware warranties;
- and occasional IT projects.
Some costs are monthly.
Some are annual.
Others arrive every few years.
A sensible IT budget accounts for all three.
Start with the cost per employee
For many modern businesses, a useful starting point is the cost of providing each employee with a properly managed technology environment.
That could include:
Microsoft 365
Email, Office applications, Teams, cloud storage and the security and management technology associated with the chosen business licence.
IT support
Someone employees can contact when they need help.
Device management
Monitoring computers, deploying updates, maintaining configurations and knowing which devices the business actually has.
Cybersecurity
Endpoint protection, email protection, identity security, threat monitoring and other appropriate security controls.
Backup
Protecting important cloud and business information and providing recovery options.
Ongoing management
Managing users, licences, security settings, devices and changes as the organisation evolves.
This is why comparing managed IT solely with the price of a Microsoft licence or antivirus product does not tell you very much.
You are comparing a product with a service.
Microsoft licensing alone illustrates the difference
Consider Microsoft 365.
A business can purchase a Microsoft subscription directly and give an employee access to Outlook, Word, Excel and Teams.
But buying the licence is not the same thing as managing the environment.
Somebody still needs to decide:
- which licence is appropriate;
- how accounts are secured;
- how multi-factor authentication is configured;
- what happens when employees join and leave;
- how devices are managed;
- what access policies should apply;
- how company data is protected;
- what is backed up;
- who responds to security alerts;
- and who employees contact when something does not work.
Software provides tools.
Someone still needs to use and manage those tools properly.
For a growing business, that is an important distinction.
What should managed IT cost?
There is not one correct number.
A ten-person design agency with entirely cloud-based systems has very different requirements from a 40-person manufacturer with multiple sites, specialist machinery and an on-premises server.
Similarly, a solicitor handling sensitive client information may require controls that are not appropriate for a different type of organisation.
The important thing is to understand what is included.
When comparing managed IT proposals, ask whether the monthly cost includes:
- Microsoft 365 licensing;
- user support;
- device management;
- patching;
- endpoint security;
- email security;
- identity protection;
- cybersecurity monitoring;
- Microsoft 365 backup;
- cybersecurity awareness training;
- ongoing administration;
- out-of-hours support;
- and regular reviews.
A cheaper quotation is not necessarily cheaper if half of those services appear as separate invoices later.
And a more expensive quotation is not automatically better.
Compare outcomes and inclusions, not just the number at the bottom of the page.
You can see how Bitwise-IT structures these inclusions on our managed IT pricing page.
Do not forget the cost of the computers
Hardware is one of the easiest costs to plan.
Yet many businesses do not budget for it at all.
Instead, computers are replaced when:
“It has become unbearably slow.”
or:
“It died this morning.”
Neither is a particularly good procurement strategy.
For most ordinary business computers, planning around a lifecycle of approximately three to five years provides a useful starting point.
That does not mean every computer must automatically go in the bin on its fifth birthday.
It means the business knows replacement expenditure is coming.
Imagine a company has 40 computers and plans around a four-year replacement cycle.
Very roughly, that means budgeting to replace around ten machines each year.
Instead of:
“We have unexpectedly got to spend £10,000 on computers.”
it becomes:
“This year’s budget includes the next ten devices in our refresh programme.”
Much easier.
Cheap computers can be surprisingly expensive
The purchase price is not the only cost of a business computer.
Consider an employee earning £35,000 per year.
Their computer takes several minutes longer to start.
Applications regularly freeze.
Large spreadsheets crawl.
Teams calls struggle.
Updates cause problems.
The employee loses perhaps ten minutes each working day.
Ten minutes does not sound important.
Across approximately 220 working days, however, that is around 37 hours of lost time per year.
Nearly an entire working week.
And that is one employee.
If ten people have similarly poor equipment, the cost of lost productivity can quickly exceed whatever the company saved by keeping old hardware for another year.
The cheapest device is not necessarily the lowest-cost device.
Budget for projects separately
Not every technology cost belongs in your monthly managed IT fee.
Businesses change.
Perhaps next year you are:
- moving office;
- opening another site;
- replacing a server;
- implementing a new CRM;
- upgrading Wi-Fi;
- moving data to the cloud;
- improving meeting rooms;
- introducing a client portal;
- replacing telephone systems;
- or significantly increasing headcount.
These should be identified during budgeting rather than discovered halfway through the financial year.
Your IT provider should be able to help.
Tell them where the company is going.
If you are planning to recruit 15 employees, they need to know.
If you are moving premises in September, they definitely need to know.
If you are adopting a new line-of-business application, involve them before the contract is signed.
IT works much better when it is part of business planning rather than something informed about afterwards.
Cybersecurity needs a budget too
Cybersecurity used to be treated as an optional addition to IT.
That is increasingly difficult to justify.
For a modern business, security should be considered part of the cost of operating its technology.
That may include:
- endpoint security;
- identity protection;
- email security;
- backup;
- threat monitoring;
- multi-factor authentication;
- access controls;
- security awareness training;
- vulnerability management;
- and incident preparation.
The appropriate level depends upon the business and the information it handles.
But “we have antivirus” is not really a cybersecurity budget.
What about cyber insurance?
Cyber insurance is another cost worth considering separately.
Insurers may ask questions about the security controls already in place.
Depending upon the policy and organisation, that could include areas such as multi-factor authentication, backups, endpoint protection, patching, privileged accounts and employee training.
Your IT provider should be able to help you understand and evidence the technical controls you actually have.
There is an important word there:
Actually.
Insurance applications are not the place to assume a security control exists because somebody remembers discussing it three years ago.
Do not budget only for things going right
Technology budgets normally focus on buying and operating systems.
Resilient businesses also think about what happens when those systems fail.
Ask:
- What happens if our internet connection fails?
- What happens if a key laptop dies?
- What happens if Microsoft 365 is unavailable?
- What happens if our server fails?
- What happens if we are hit by ransomware?
- What happens if a critical application stops working?
- How quickly do we need to recover?
The answer might justify additional connectivity, spare equipment, better backups or other resilience measures.
Not every company requires expensive redundancy.
But every company should understand where its important single points of failure are.
Your IT budget should follow your business plan
This is perhaps the most important point.
IT budgeting should not happen in isolation.
Imagine your business plans to grow from 30 employees to 42 over the next 18 months.
That has technology consequences.
You may need:
12 additional computers.
12 Microsoft licences.
Additional monitors and peripherals.
More support capacity.
Changes to Wi-Fi or networking.
More software licences.
Additional cybersecurity coverage.
Perhaps more office space.
Possibly different systems entirely.
The person responsible for IT and the person responsible for finance should therefore be having the same conversation.
Where is the company going, and what technology will it need when it gets there?
A simple way to build next year’s IT budget
Rather than picking a percentage of turnover, divide the budget into four areas.
1. Run
What does it cost to operate the technology you already have?
Include:
- managed IT;
- Microsoft 365;
- connectivity;
- cloud services;
- software subscriptions;
- telephony;
- domains and other recurring technology.
2. Protect
What does it cost to protect the business?
Include:
- cybersecurity;
- backup;
- security awareness;
- monitoring;
- insurance;
- resilience.
Some of these may already be bundled into managed IT.
Do not count them twice.
3. Replace
What equipment reaches the end of its planned lifecycle?
Include:
- laptops;
- desktops;
- monitors;
- network equipment;
- servers;
- mobile devices;
- meeting-room equipment.
Build a multi-year replacement schedule.
4. Improve
What is the business changing next year?
Include:
- new systems;
- office moves;
- automation;
- cloud projects;
- new sites;
- significant growth;
- customer-facing technology;
- productivity improvements.
Add those four categories together and you have a much more meaningful IT budget.
One more category: contingency
Not every technology expense can be predicted.
A device gets damaged.
A supplier changes its pricing.
A project becomes necessary.
A business opportunity appears that requires new technology.
Including a sensible contingency prevents every unexpected IT purchase from becoming an unwelcome surprise.
The appropriate amount will depend upon the complexity of your environment and how accurately you have planned the other categories.
IT should become more predictable as the company grows
There is a strange expectation around business technology.
Companies routinely budget for salaries, rent, insurance, vehicles and professional services.
But IT can still be treated as:
“We will spend something when we need to.”
That approach becomes increasingly uncomfortable as a company grows.
If 40 employees depend upon technology every day, IT is no longer an occasional purchase.
It is operational infrastructure.
That does not mean spending recklessly.
Quite the opposite.
A well-planned technology budget lets you:
- spread hardware replacement;
- forecast recurring costs;
- avoid emergency purchases;
- prioritise projects;
- identify unnecessary subscriptions;
- plan for growth;
- and make deliberate decisions about risk.
Predictability is one of the benefits of properly managed IT.
Five questions to ask before setting next year’s budget
Before agreeing your next IT budget, ask:
1. What are we currently spending on technology across the entire business?
Not just the IT company’s invoice.
2. Which devices and systems will need replacing during the next three years?
Not just next year.
3. Are there obvious security or resilience gaps we need to address?
4. What changes does the business expect over the next 12–36 months?
Growth, new premises, new employees, acquisitions or new systems.
5. Can our IT provider give us a technology roadmap rather than simply next month’s invoice?
That final question is particularly important.
Your IT provider should help you plan
A good relationship with an IT provider should not consist entirely of support tickets and invoices.
Your provider sees the technology your business uses every day.
They should be able to help identify ageing equipment, recurring problems, security weaknesses, unnecessary costs and future requirements.
For the director or manager responsible for IT, that changes the conversation from:
“How much is IT costing us?”
to:
“Are we investing the right amount in the technology our business depends upon?”
Those are very different questions.
Planning your next IT budget?
Bitwise-IT provides managed IT and cybersecurity services to businesses across Essex and beyond.
We particularly work with growing organisations that want their technology costs to become more predictable, their employees properly supported and their cybersecurity managed as part of the overall IT service.
If you are planning next year’s IT budget and would like a second opinion on what your organisation should be considering, we are happy to have a conversation.
No obligation and no deliberately incomprehensible IT jargon. Just sensible business technology planning.
