How much should I budget for IT?
Industry benchmarks for IT spending by company size. Learn what percentage of revenue to allocate and what that budget should cover.
“How much should we spend on IT?” is one of the most common questions we hear. Let’s give you real numbers based on industry benchmarks and what we see with clients.
The Quick Benchmark
Most SMBs should budget 3-6% of revenue for IT.
For regulated industries (healthcare, financial services, life sciences), budget toward the higher end: 5-8%.
| Annual Revenue | IT Budget Range | Monthly |
|---|---|---|
| $1M | $30,000 - $60,000 | $2,500 - $5,000 |
| $2.5M | $75,000 - $150,000 | $6,250 - $12,500 |
| $5M | $150,000 - $300,000 | $12,500 - $25,000 |
| $10M | $300,000 - $600,000 | $25,000 - $50,000 |
| $25M | $750,000 - $1.5M | $62,500 - $125,000 |
What’s Included in “IT Budget”
Your IT budget should cover everything technology-related:
Personnel (Internal or Outsourced)
- IT staff salaries and benefits
- OR managed IT services fees
- IT consulting or project work
Infrastructure
- Servers (physical or cloud)
- Network equipment (firewalls, switches, WiFi)
- Workstations and laptops
- Mobile devices
- Printers and peripherals
Software and Subscriptions
- Microsoft 365 or Google Workspace
- Line-of-business applications
- Security software
- Backup services
- Cloud services
Security
- Endpoint protection
- Firewall licensing
- Security monitoring
- Employee training
- Penetration testing
Communications
- Phone system (VoIP)
- Video conferencing
- Internet connectivity
Projects
- Upgrades and migrations
- New implementations
- Office moves/buildouts
Breaking Down a Typical IT Budget
Here’s how a well-balanced IT budget typically breaks down:
| Category | % of IT Budget |
|---|---|
| Personnel/Managed Services | 40-50% |
| Software/Subscriptions | 20-25% |
| Hardware (amortized) | 10-15% |
| Security | 10-15% |
| Projects | 10-15% |
| Contingency | 5-10% |
Example: $5M Revenue Company
Total IT Budget: $200,000/year (~4% of revenue)
| Category | Annual | Monthly |
|---|---|---|
| Managed IT Services | $90,000 | $7,500 |
| Software (M365, LOB apps) | $45,000 | $3,750 |
| Hardware refresh | $25,000 | $2,083 |
| Security tools | $20,000 | $1,667 |
| Projects | $10,000 | $833 |
| Contingency | $10,000 | $833 |
Industry-Specific Considerations
Healthcare (HIPAA)
Budget: 5-8% of revenue
Higher because:
- HIPAA compliance requirements
- EHR system costs
- Additional security needs
- Audit and documentation
Life Sciences (FDA Regulated)
Budget: 6-10% of revenue
Higher because:
- FDA 21 CFR Part 11 compliance
- Validated systems requirements
- Extensive documentation
- Specialized applications
Financial Services
Budget: 5-8% of revenue
Higher because:
- SEC/FINRA compliance
- Data security requirements
- Trading system reliability
- Audit requirements
Professional Services (Law, Accounting)
Budget: 4-6% of revenue
Moderate because:
- Client data protection important
- Less specialized applications
- Standard compliance needs
Manufacturing
Budget: 2-4% of revenue
Lower because:
- Less technology-dependent
- Focus on OT vs IT
- Simpler requirements
Note: These are averages. Your specific situation may differ.
Signs You’re Underspending
Your IT budget might be too low if:
- Equipment is aging - Computers older than 5 years, servers older than 7 years
- Frequent downtime - Technology constantly failing
- Security incidents - Getting attacked or having close calls
- Slow performance - Everything feels sluggish
- No strategic planning - IT is reactive only
- Staff complaints - Technology is a constant frustration
- Can’t grow - Technology limits business expansion
- Compliance gaps - Failing audits or missing requirements
Signs You’re Overspending
Your IT budget might be too high if:
- Unused licenses - Paying for software nobody uses
- Redundant systems - Multiple tools doing the same thing
- Over-specced hardware - Buying enterprise gear for basic needs
- Premium everything - Highest tier when mid-tier works fine
- No competitive bidding - Never shopping vendors
- Consultant dependency - Paying for expertise you could develop
Getting More Value from Your IT Budget
Quick Wins
- Audit software licenses - You’re probably paying for unused seats
- Review vendor contracts - When did you last negotiate?
- Consolidate tools - How many overlapping applications?
- Right-size cloud resources - Are you paying for unused capacity?
Strategic Optimization
- Plan hardware lifecycle - Budget for replacement before emergencies
- Standardize equipment - Same models = easier support
- Invest in automation - Reduce recurring manual work
- Training - Skilled users need less support
Long-Term Value
- Proactive over reactive - Prevention costs less than repair
- Security investment - Breaches are expensive
- Strategic planning - Align IT with business goals
- Vendor management - Negotiate better deals
Building Your IT Budget
Step 1: Inventory Current Spending
Gather all IT-related costs:
- Current contracts and subscriptions
- Hardware purchases from last 3 years
- Support costs
- Project spending
- Hidden IT costs in other budgets
Step 2: Assess Current State
- What’s working well?
- What’s causing problems?
- What’s aging out?
- What compliance gaps exist?
Step 3: Identify Upcoming Needs
- Planned growth
- New locations or remote work
- Compliance requirements
- Business initiatives needing IT
Step 4: Prioritize Investments
Categorize needs:
- Must have: Security, compliance, keeping lights on
- Should have: Efficiency improvements, aging replacements
- Nice to have: Enhancements, nice-to-haves
Step 5: Build the Budget
- Start with must-haves
- Add should-haves within reasonable limits
- Include contingency (10%)
- Plan nice-to-haves if budget allows
The ROI Conversation
IT isn’t just a cost center. Good technology investments:
- Increase productivity - People work faster
- Reduce downtime - Less lost revenue
- Prevent breaches - Avoid massive costs
- Enable growth - Technology that scales
- Improve customer experience - Better service
- Attract talent - Modern tools matter
When evaluating IT investments, ask: “What’s the cost of NOT doing this?”
Getting Help
Not sure if your budget is right? Consider:
- IT assessment - Have a professional evaluate your environment
- Benchmarking - Compare to similar businesses
- Strategic planning - Align IT with business goals
- Managed services consultation - Understand what support really costs
Want to know if your IT budget is right-sized? Contact us for a complimentary budget assessment.
Have More Questions?
Our team is here to help. Whether you're evaluating IT services or have a specific question about your technology, we're happy to have a conversation.