Technology is essential to nearly every part of doing business today, but determining how much to spend on IT isn’t always straightforward. One common starting point is to calculate your IT budget as a percentage of revenue.
While industry benchmarks can provide useful context, the right IT budget depends on your organization’s size, technology needs, security requirements, growth plans, and existing infrastructure. Here’s how to build an IT budget that supports your business today without losing sight of what’s ahead.
What Percentage of Revenue Should an IT Budget Be?
There’s no universal percentage that works for every organization. IT spending can vary significantly based on industry, company size, business model, regulatory requirements, and how heavily the organization relies on technology. A professional services firm with relatively straightforward technology needs, for example, may require a very different investment than a healthcare organization managing sensitive patient information or a rapidly growing company adding employees and locations.
That’s why IT budget percentage of revenue is best treated as a benchmark rather than a rule. Instead of asking only, “What percentage should we spend?” businesses should also consider what technology is critical to daily operations, which systems are approaching end of life, where are the organization’s biggest cybersecurity risks, are employees losing productivity because of outdated or unreliable technology, will the business add employees, locations, devices, or services in the next year, and are there regulatory or compliance requirements that affect technology investments?
Answering these questions provides a much clearer picture of what an effective IT budget should look like.
What Should an IT Budget Include?
An IT budget should account for more than computers and software licenses, and considers the full technology environment and the ongoing costs required to keep it secure, reliable, and productive.
Hardware and Infrastructure
Computers, servers, networking equipment, mobile devices, and other hardware eventually need to be repaired or replaced. Planning for these expenses helps prevent an unexpected equipment failure from becoming an unexpected financial problem.
Creating a replacement schedule can also help spread investments across multiple years rather than requiring large, reactive purchases.
Software subscriptions and cloud platforms can represent a significant portion of ongoing IT expenses. Your budget should account for tools such as:
- Microsoft 365 and other productivity platforms
- Cloud storage and backup
- Industry-specific software
- Collaboration tools
- Security applications
- Software licensing and renewals
Regularly reviewing these expenses can also uncover unused licenses or overlapping tools that may be costing the organization unnecessarily.
Cybersecurity shouldn’t be treated as an optional line item or something to fund only after everything else. Depending on your environment, security investments may include:
- Endpoint protection
- Email security
- Multi-factor authentication
- Security monitoring
- Data encryption
- Backup and disaster recovery
- Employee security training
- Vulnerability management
The appropriate investment will depend heavily on your organization’s risk profile and the sensitivity of the information it handles.
Your budget should also account for the people responsible for keeping technology running. That could mean an internal IT department, a managed IT services provider, or a combination of both.
When budgeting for support, consider not only the cost of fixing problems but also the value of proactive monitoring, maintenance, planning, and security. Preventing an outage is typically much less disruptive than responding to one after employees can no longer work.
Backup and Business Continuity
What would happen if your organization couldn’t access its systems tomorrow? Backups, disaster recovery, and business continuity planning help protect the organization against hardware failures, cyberattacks, natural disasters, and other disruptions. An effective IT budget should account for both protecting data and restoring operations when something goes wrong.
Look Beyond This Year’s Technology Needs
One of the biggest mistakes organizations make when creating an IT budget is focusing exclusively on what they need right now, but your technology plan should support where the business is going.
Consider upcoming changes like hiring and workforce growth, new office locations (including remote or hybrid work), hardware replacement cycles, regulatory changes, and new software implementations. Planning for these investments ahead of time makes technology spending more predictable and reduces the likelihood of major surprise expenses.
Separate Ongoing Costs From Future Investments
It can be helpful to divide your IT budget into two broad categories. Separating the two makes it easier to understand what you’re spending to maintain the business versus what you’re investing to improve it.
Ongoing operational expenses keep your existing environment running. These might include software subscriptions, IT support, cloud services, security tools, internet services, and routine maintenance.
Strategic investments improve or transform the environment. Examples could include replacing aging hardware, migrating systems to the cloud, implementing a new security solution, or upgrading network infrastructure.
Don’t Forget the Cost of Downtime
The least expensive technology isn’t always the most cost-effective technology. An aging server, unreliable network, or inadequate cybersecurity solution may save money on paper while creating much larger costs elsewhere.
Downtime can lead to lost productivity, missed customer opportunities, delayed projects, and frustrated employees. A cybersecurity incident can introduce even greater financial and reputational consequences. When evaluating your IT budget, consider business risk and total cost of ownership, not simply the price of each technology investment.
Review Your IT Budget Regularly
Technology changes quickly, and your IT budget should evolve with it. Rather than treating budgeting as a once-a-year exercise, review technology spending and priorities throughout the year. This gives your organization an opportunity to identify emerging risks, adjust for business changes, and prepare for upcoming investments before they become urgent. A proactive approach also makes it easier to forecast technology expenses and build a longer-term roadmap.
Build an IT Budget Around Your Business
Industry benchmarks and IT budget percentages can be helpful starting points, but they can’t tell you exactly what your organization needs. A strong IT budget connects technology spending to business priorities. It accounts for current operations, future growth, cybersecurity risks, equipment lifecycles, and the level of support your employees need to work effectively.
Savant works with businesses to understand their existing technology environment, identify priorities, and develop IT solutions around their specific needs and budget. Ready to make your technology spending more strategic? Request a Custom IT Plan from Savant.