It is no doubt essential for SMEs to keep a close eye on their budget to maintain financial stability and prepare for unforeseen circumstances. That being said, it is also beneficial to be aware of the constant tech advances happening around the world and keep up with these advances if you do not want to be left behind by the competition. So, the question arises: how does one determine IT expenditure?
There is no straightforward answer, as every business has its own needs and requirements, and your budget will depend on these requirements. No two companies, not even within the same industry, will spend the same amount of money on IT.
But one could get a clearer idea by looking at some case studies and observing how other companies of different budgets and scale, allocate their resources in the IT sector.
According to one study done by Deloitte on technology budgets, the average spending on IT across all industries was 3.28 percent. The average came from considering a wide range of industries, with the lowest spender being construction at less than 2 percent and the biggest spender being banking and securities at 7 percent.
Other studies that looked at the size of the business found that small and mid-sized businesses actually spent more on IT as a percentage of their revenue than large businesses. Small businesses spend around 6.9% of their revenue on information technology, while midsized businesses spend around 4.1% of their revenue on IT. For large companies, the percentage drops to 3.2%. The smaller percentage spent by larger companies is often the result of scale—they put so much money into IT that they get better rates, perform the work in-house, etc.
It’s essential to note that these benchmarks should be used as a starting point and that companies should consider the factors that are specific to their business when determining their IT budget.
Asking focused questions that help shed light on your true IT demands is a clearer approach to determine how much money should be spent on IT. These inquiries ought to cover the following:
What are you spending on IT right now?
Every business, no matter its size, needs an IT budget. To see how much you have been spending on IT, add up your expenditures on information technology over the past year.
What are your business goals?
Your IT investments should support you in achieving particular business goals. Your money would probably be better off being used for other aspects of your company or for other IT tools if it isn’t helping you meet your goals in a quantifiable way. A growing business will likely need to scale its IT infrastructure accordingly.
What is your risk tolerance?
Some businesses require more robust security measures than others. Consider how much you are willing to invest to mitigate potential security risks.
What are your current IT pain points?
Identify areas where your current technology is causing problems or inefficiencies. Addressing these issues can be a good use of IT funds.
What is your industry standard?
Further research on how much similar businesses in your industry typically spend on IT can be a helpful benchmark.
Can you leverage existing technology more effectively?
Before investing in new solutions, explore ways to get the most out of your current tools through training or optimization.
Answers to these questions will help you come to a clear conclusion about your spending habits in SMEs.
Studies mentioned in this article: https://www2.deloitte.com/us/en/insights/focus/cio-insider-business-insights/technology-investments-value-creation.html
https://www.techtarget.com/searchcio/