How much should a small business spend on IT?

The two common yardsticks

IT spend as a percentage of revenue is the figure most often quoted in surveys. For many small service businesses it lands somewhere between about two and six percent, while businesses that are heavily digital, such as software firms or online retailers, can run much higher, and some trades or retail businesses run lower. The figure includes hardware, software, support, internet and phones, and any projects that year.

IT spend per staff member is the second yardstick, and for an office business it is often more telling. Most of the cost of IT follows people: each person needs a device, a set of licences, a mailbox, support and security. Dividing total yearly IT spending by the number of staff who use a computer gives a figure you can compare from year to year, even when revenue swings.

Why the ranges are so wide

Two businesses with the same revenue can have completely different IT needs. A ten-person engineering consultancy running heavy design software on high-end workstations will spend far more per head than a ten-person recruitment firm that lives in email and a browser. A business with high revenue per employee, such as a wholesaler, will show a low percentage even with a healthy IT budget, while a labour-intensive service business with modest margins will show a higher one.

The year matters too. A year that includes an office move, a new server or a full laptop refresh will look expensive against a year of routine running costs. That is why it helps to compare averages over two or three years, or to separate running costs from projects before benchmarking. Inflation in software pricing also pushes figures up over time even when nothing has changed in the office, so a rising number is not by itself a sign of waste.

Working out your own figure

Pull a year of transactions from your accounting software and code everything IT-related: support invoices, Microsoft or Google licences, other software subscriptions, hardware purchases or lease payments, internet and phone bills, printer contracts and any one-off project costs. Many businesses are surprised by how many separate subscriptions turn up on the company credit card, often paid by different staff for tools nobody else knew existed.

Split the total into running costs and one-off costs, then divide each by your staff headcount. You now have a per-person running cost and a per-person project cost. Those two numbers are far more useful in a conversation with your accountant or IT provider than a single percentage of revenue. Repeat the exercise each year with the same coding rules, and the trend will tell you more than any external survey. A per-person running cost that climbs steadily without new capability is worth investigating.

Spending too little has costs as well

A very low IT figure is not automatically good news. It often means old computers are being kept long past their useful life, security tools are missing, backups are unchecked or nobody is responsible for updates. Those savings tend to reappear later as lost staff time, a slow office, or a security incident that costs many times what prevention would have cost. Staff waiting for a slow laptop to start each morning is a cost too, just one that never appears on an IT invoice.

Equally, a high figure is not always wasteful. If the business depends on its systems to win and deliver work, investing more can be the right call. The question is whether the money buys something the business values. Faster quoting, fewer errors, better client service and staff who can work safely from anywhere are all legitimate returns, even if they are harder to measure than a licence fee. Ask what each major line item does for the business, and be wary of any spend nobody can explain.

Using benchmarks without being ruled by them

Use the comparison to ask better questions. If your per-person cost is well above what similar firms report, look for duplicated subscriptions, unused licences, leased equipment nobody returned, or a support arrangement that charges for every small job. If it is well below, check whether security, backups and device replacement are actually being paid for, or just skipped.

Then set your budget from your own plan, built from your inventory and business goals, and use the benchmark only to sanity check the result. A business that knows what it is buying and why is in a better position than one that has simply matched an industry average. If you are unsure how to read your figures, your accountant and your IT provider can look at them together, which often surfaces savings and risks that neither would spot alone.