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IT is critical to any business. Every company uses various technologies to keep things running smoothly. When there’s a problem with a machine or your network, it’s typically multiple departments that go into panic mode, not just one. These bottlenecks in workflow are simply not necessary in the modern age.

 

You have everything you could need at your disposal to find the right IT tools and support for your company—to ensure that work can keep on moving and that any possible problems are prevented or dealt with. But how do you set the budget to decide whether or not you need to purchase new tech?

 

It may sound difficult to predict what you’ll need throughout the year, which is why we created a comprehensive guide that outlines our top tips on how to plan your IT budget so you can maintain peace and order at your small business, all while saving money. Trust us and take a look at the following expert advice. From hardware and software to services, you’ll feel better once you’re hyper-organized and have an efficient plan in place.

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The hidden IT costs that could be draining your business

 

Before we begin the process of developing your IT budget, it's important to understand which elements of your current business may be negatively impacting your budget or throwing off your projections. You need to consider the long-term consequences that the decisions you make will have on your bottom line. Many of these items are not carefully considered by companies as a part of the process when developing their plan—but they certainly should be. For instance, without convenient and effective ways to solve IT problems, employees will often resort to diagnosing issues themselves. This can impact productivity and may even jeopardize the security and reliability of your IT systems and data. The hit to employee morale and customer confidence also proves difficult for many small businesses. Combined, these elements can siphon earnings out of company coffers, meaning your revenue takes the ultimate hit.

Anyone who’s used a computer knows that dealing with a sluggish OS or application is one of the most frustrating experiences known to modern man. If your employees are frequently battling against slow systems, networks and equipment, the resulting drain can understandably sap morale.

 

By some estimates, the average employee spends as many as 167 hours a year waiting on tech. That’s over four work weeks lost in limbo while files transfer, pages load and applications open. Employees don’t want to sit there tapping their fingers while their screen unfreezes. By not updating outdated computers and systems, you’re sending a pretty clear message about how much you value your employees’ contributions.

 

Aging tech may not be the sole factor behind an employee’s decision to quit, but it can certainly push them over the edge. And when good employees leave, that turnover can ultimately cost you more than you might think. The hidden overhead costs—such as valuable time and other resources—spent on searching for replacements is not something you’ll want to have to add to your calculations, on top of everything else.

It’s not just employees who suffer when systems go down. Customers and clients feel the results as well, and their confidence may be even harder to regain. After all, your customers likely have more than one option to choose from, so if you rely on outdated equipment and systems, you could be giving your technically advanced competitors the edge.

 

Keep in mind that it may take years before you feel the real impact of slashing your IT budget, but if obsolete systems lead to a data breach or other event, the effect could potentially be more immediate. In fact, cybercriminal events cost the average business over $21 million in 2017, much of which resulted from legal fees, PR campaigns and the cost of engaging IT services providers in an emergency capacity to mitigate the damage.

 

What’s more, a highly publicized leak or data breach will likely erode public trust, which is very difficult to recover from. This is particularly true of small- and medium-sized businesses, 60% of which pay the ultimate price for lax security controls by shuttering altogether after a hack.

 

So now you have an idea of how important great IT can be and how you shouldn’t cut corners in certain areas when trying to fix your IT budget. Next we’ll learn about other things you need to consider when looking to slash costs and get a better sense of how to create an all-around smart IT budget for the year. Two aspects revolve around weighing how aligned your spending is with the average spend for similar-sized businesses—and advice on what to do if you find your company is way out of line.

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Concerned about how much you’re spending in your IT budget?

 

 

It’s not a good idea to sit down to do your budget and start scratching out the most costly-looking areas. Slashing costs can be a helpful practice, but it has to be done in a purposeful and calculated manner. You will want to take a look at the numbers involved and draw comparisons—not necessarily within your own company, but against others. When people ask how much they should be spending on IT, it seems they really want to know two things:

 

  1. Whether their spending is in line with that of other small businesses.
  2. What they can do to rein in their costs if they’re out of line.

 

 

An acceptable range (and a benchmark for comparison)

 

This can depend on a variety of factors, such as the size of the company, whether they rely more on hardware or software and how technology-driven their business is.

 

A plumbing or landscaping company, for example, is likely to spend less on technology than, say, a financial services company that uses expensive proprietary software to deliver services. Of course, these days, more and more low-tech businesses are operating in the cloud, relying on mobile technology and taking other steps to become more technology-driven—but, in general, it’s safe to say that some types of businesses will likely spend more on IT than others.

 

We analyzed IT spending across our client base to determine an average range over a wide spectrum of types of companies, and we checked it against IT spending benchmarks. In doing this, we determined that for our clients, the average IT spend per employee ranges from $4,000–$8,000 a year, with the exact amount depending on a variety of factors like company size and industry.

 

We also found that our calculated range aligns with metrics published recently by Computer Economics, Inc. Their latest IT Spending and Staffing Benchmarks report placed the total IT spend per user for all industries at $6,847. As a result, we can tell our clients with confidence that their spending is in line with other companies in North America.

 

The cost may be more than $6,847 if their business is very technology-driven, or less if it's not. But what if your IT spend is far greater than those amounts?

 

 

 

1. Switch to a managed services model.

 

Your business may be spending more than necessary on IT by supporting an internal IT department. Maintaining a fully staffed and trained IT department doesn’t necessarily make economic sense. When you’re a small business that can afford one fairly senior individual who would have to do everything him or herself, that salary combined with all the overhead expense would far outweigh a monthly MSP cost.

 

By outsourcing to a managed services provider (MSP), you’ll have a fixed monthly cost that’s likely to be lower than paying a qualified professional’s salary in-house. And you won’t have to worry about paying additionally for unexpected problems that crop up when your internal IT resources go home at night or go on vacation. An MSP can provide you with 24/7 monitoring and other ongoing services.

 

2. Resize your IT infrastructure.

 

Many small businesses have a lot more technology than they actually need. We often see companies that have more servers, routers and other infrastructure components than are really necessary to operate their business. In addition to increasing the capital expense to buy these systems, an over-equipped IT environment requires more “care and feeding,” if you will, to monitor and manage systems in order to keep everything up and running.

 

We advise getting an independent assessment from an IT expert to determine whether you have more technology than you need and, if so, what you should do about it. Options range from streamlining the on-premise environment to moving the infrastructure to the cloud.

 

3. Negotiate better pricing with vendors.

 

Even a very small business does business with a variety of technology companies like hardware manufacturers, software vendors and providers of voice and data services. If you’re not a technology expert, it may be challenging to determine whether you’re paying a fair price for the technology you use.

 

For example, we had one client who was spending $1,500 a month on their voice and data network before we helped them negotiate that cost down to about $500–$600. We’ve also worked with clients who would have benefited from paying for software as a service rather than buying it outright, but didn’t realize it. We strongly advise teaming up with an IT expert who can come in and confirm that you’re using the right technologies and paying the right price for your company.

 

The more you know, the better you can control what you spend on IT. It starts with understanding what you’re spending, then comparing how it stacks up against other businesses and, if it’s dramatically misaligned, knowing what to do about it. Now, we’re here to make sure you don’t overlook anything important, so let’s think about some areas that could be considered small, but in reality, may be bleeding your company dry in bigger ways.

 

Keep in mind that the “little” things can seriously add up, but if you can catch where the leak is, so to speak, you can stop it. Think long-term, not short-term, as there’s a common misconception that saving money now will help you out later—oftentimes it’s quite the opposite. Let’s investigate.

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Short-term savings that can lead to long-term IT costs

 

 

Technology is often presented as a way to cut operational spending—after all, if you can get a machine to do the work of 10 employees, you’re definitely going to see some savings. However, when it comes to IT services and infrastructure, you need to choose where you cut corners carefully. Low-overhead IT solutions may cost less upfront, but opting for these services can come back to haunt you during an IT support or security event.

 

Most organizations spend very little on IT solutions as it is—small businesses dedicate an average 6.9% of their budget to IT, while enterprise companies spend a mere 3.1%. Considering how much a data breach or server downtime can cost you ($3.62 million and $100,000 per hour, respectively), choosing economy-grade equipment and IT support isn’t always the wisest choice.

 

Businesses may shave IT spending by opting for limited services packages, but this often backfires spectacularly when there’s a need for more intensive, personalized support. If your server goes down or you can’t access mission-critical data, you might end up paying through the nose for hourly IT support. Here are some of the cost-lowering techniques businesses use to save on IT services and solutions, as well as why those strategies often boomerang when the heat is on.

 

Refurbished equipment: Is it worth the long-term costs?

Keep in mind that return policies for refurbished products are fairly limited. Under Apple’s return window, for instance, you have just two weeks to identify defects and send back the product. And Apple actually has one of the more lenient refurbished equipment policies out there, believe it or not!

 

If you choose to go down the refurbishment path, you’ll also face restrictions with your warranty. Most refurbished products are only under warranty for 30 to 90 days, and in some cases, the warranty may not even be applicable if the manufacturer doesn’t have a repair center in your area.

 

Lastly, used equipment may need to be replaced or repaired more frequently, even though it’s been refurbished. This issue tends to particularly crop up with used laptops, which have older batteries that require charging more often and may even need to be replaced altogether.

 

A malfunctioning hard drive is another common problem, and you’ll have to pay out of pocket to have it replaced. Even if you don’t experience problems with worn-out parts, older equipment obviously becomes outdated sooner than brand-new models. The question becomes: Do you want to save now or save later?

Break/fix and hourly IT structures: Will they cover your IT needs?

Sure, investing in refurbished equipment is a gamble, but it’s a low-stakes bet compared to opting for limited IT support. Break/fix and hourly IT support structures exist for businesses that have very minimal IT commitments. Under this model, your business is charged only when you call IT support—unlike with MSPs where you would pay a fixed fee for IT services rather than the hourly model.

 

Break/fix models typically cost less, so they may appear to be saving your business money. The problem is that these pricing structures make IT spending unpredictable and difficult to budget. Additionally, hourly providers offer largely ad hoc IT solutions, so there’s little due diligence to ensure the overall security of your infrastructure and systems.

 

Break/fix and hourly IT solutions may help you in the short-term, but there’s not much preventative work done to head off problems down the line. Furthermore, you won’t have the planning and strategic advice of an expert.

 

Skimping on IT security: a bad idea by any measure

Older software often introduces security vulnerabilities into your network, and because these flaws may not be discovered until after an application’s release, the set-it-and-forget-it method of technology management isn’t a very reliable policy.

 

It’s important to reconsider your business security any time you add a network component. Even if you have robust data intrusion detection, firewalls and other IT solutions, you could be putting yourself in a vulnerable position if your wireless devices don’t follow best security practices, collectively.

 

There’s also the issue of data security with outside vendors—your information (and your clients’ sensitive data) could be at risk if those vendors aren’t using proper encryption, access management and other data protections.

 

Now let’s take a step back from the so-called “smaller” things (even though, as you discovered, they can crop up and lead to much larger issues and costs), and think at a higher level. These are our top five steps when it comes to the main things you’ll want to consider in setting your IT budget.

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5 essential steps for setting your annual IT budget

 

 

It’s important that businesses start planning ahead of time for their annual budget—especially when budgeting for key initiatives. As you know, since your IT capabilities will be an essential component of achieving your strategic goals for the entire year, your IT budget is one of the most important planning areas. Not sure where to start? We’ve identified five important steps for creating your IT budget:

 

Step 2: Audit and review your IT spending over the last 12 months.

The best IT partners will meet with you regularly to review the current state of your technology and help you budget for future IT costs. They should be willing and able to put together a rolling 12-month review of your IT spend that includes all the equipment and services they provided.

Clients are able to take a spreadsheet and add any other expenses incurred, such as software licensing, hardware purchases/leases, internet, hosting or telephony not provided through their IT partner in order to gain a complete picture of their IT spend in the previous 12 months. You can obtain these items from your profit and loss (P&L) statement.

If you don’t have a report like this available, you’ll need to create your own. If you have an accountant on staff, enlist him or her to complete this task.

Step 3: Create a baseline IT budget.

Now that you have the last 12 months of your IT spending saved in a rearview spreadsheet, copy and save the information into a new forward-looking forecast. Change the dates, leave the amounts you don’t think will change and make adjustments to reflect alterations you are certain about.

Congratulations! You now have a better IT budget than 99% of other small business owners. We’ll break down the process in far greater detail in the next sections so you can better understand how to do this on your own. Taking the following steps could help you save some serious money, improve your company’s productivity, boost morale and more.

Step 4: Assess your IT management.

This step is about putting together “must-change” and “would-like-to-change” lists by looking at and validating all of your IT providers, software, services and systems. Start by asking the following questions.

Step 5: Get quotes and finalize your yearly IT budget.

With your must-change and would-like-to-change lists in hand, you’re ready to get price quotes and make some final decisions about what to change in your budgeting spreadsheet.

When determining what stays, what goes and what changes based on the estimates you’ve calculated, it’s important to be conservative in your estimates. In other words, try to overestimate your costs! After all, it’s easy to find ways to spend your unused cash, but it can be really painful to come up with money when costs exceed your IT budget.

Let’s dive a bit further into something we already touched on so you’ll have everything you need to know about this topic. After all, this article is meant to be a comprehensive guide. It’s not enough to just scratch the surface—we want you to be fully prepared so there are no surprises that pop up over the course of the year. We’ll talk more about the ever-important role that things like hardware, software and beyond play in your overall IT budget and considerations.

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By the numbers: How to plan the best IT budget for your business

 

Your started creating your baseline IT budget in Step 3. As promised, this section will go into further detail on what you’ll need. Your budget needs to account for three major cost areas: hardware, software and support. By now, you probably understand how crucial these components are, but it’s time to examine the specifics instead of just the nitty-gritty.

 

At this point, it’s critical for you to know not just about the technologies and services themselves, but also about quality, so you can choose the right ones in each category. Remember, you will be doing research on what is best and then getting everything into your spreadsheet. Let’s break it down:

 

 

  • Hardware
  • Software
  • Support
  • The numbers
  • Quality
  • Price
  • Service after the sale
  • Using this knowledge to make successful purchases
  • What exactly falls under the hardware category? This part of your IT budget it going to cover all of your network gear, desktop hardware, printers and copiers, etc. This includes (but is not limited to):

     

    Firewalls

     

    Routers

     

    Switches

     

    Wireless internet set up

     

    Computers

     

    Monitors

     

    Projectors

     

    Pro tip: The average lifespan of most hardware is no more than 5 years. If you want to ensure that all hardware is replaced over a 5 year span, budget to replace 20% of all of your hardware per year. That way, at the end of every 5 year cycle, all hardware will have been updated!

  • Your software costs are going to cover the line-of-business applications, programs and subscriptions used by your employees. Additional services such as voice and data communications (internet and phones) can be added to this category, as well. A lot of these costs will be fixed and recurring software costs. For example:

     

    Security protection (anti-virus, anti-malware, anti-spam programs)

     

    Desktop applications (Microsoft Office, Adobe)

     

    CRM Accounting (Quickbooks)

     

    ERP

     

    An important point to remember is that software is bigger than just straight computer-related costs. This category should also include things such as your wireless service and your phone system—VoIP or otherwise.

  • When you have a growing number of users in your company and an increasing amount of hardware and software to manage, it’s essential to have a robust support system for set up, upgrades, troubleshooting and vendor management. There are two support options for businesses: building an in-house IT staff or hiring a third party service provider. You can find more information about which provider type is best for your business here.

  • We took a sample set of our small business clients and looked at their total annual spend over 2015 for hardware, software and support. To successfully plan your IT budget as your company grows, you should combine the per-user average for each of the three major sections outlined above. Our sample group’s average annual cost-per-user is as follows:

     

     

    Hardware

    Software

    Support

    Total Cost Per User

    Average Per User Cost

    $1,000

    $1,000

    $1,500

    $3,800

     

    We recommend an IT budget range of $3,500–$4,500 per user for an average-sized small business.

     

    Pro tip: Not all budgetary sections are created equal. For example, if you’re a manufacturing company, your hardware costs will probably be higher than the average business, and you should plan accordingly>. It’s important to understand your own business needs and make sure you have extra funds allocated in the right places.

     

    Planning your IT budget can seem like an overwhelming task, but with a simplified approach, thorough understanding of your business needs and some real time data, you will have all the tools needed to make a solid IT budget.

  • The quality of a product is essentially its usefulness. You can determine quality by asking yourself the following questions:

     

    How well does this product meet my specific needs?

     

    Does it have the features and functions I require?

     

    How well is it made?

     

    How long will it last?

     

    Online reviews can help you answer these questions, especially those found on respected sites such as Newegg, which are authored by real people in the tech sphere who actually use the products they’re reviewing.

     

    Doing your research and reading reviews is an important component of gauging a product’s quality. If a product has good reviews and comes from a respectable brand, you may be tempted to pull the trigger on your purchase. However, you also need to understand how the product will interact with the technology you already have in place. Getting a second opinion is an absolute must, whether it be from an MSP or another type of IT consultant.

  • Everyone has a budget, but that doesn’t mean buying “cheap” is necessarily the way to go, as we’ve mentioned. After all, if you purchase a product that breaks easily or doesn’t fully meet your needs, you’ll end up needing to replace it, thereby busting your budget.

     

    Keep in mind that the actual cost of a product is only one part of the Total Cost of Ownership (TCO), or the sum of all costs incurred over the product’s useful life. In addition to the initial price, quality and service after the sale also impact TCO. This reaffirms that buying based on the lowest available price alone is not a smart move.

  • If the product isn’t satisfactory, how much will it cost to return, including shipping costs and restocking fees? How much time will your staff waste dealing with a cumbersome return process? Will your operations be impacted by not having a working product in place?

     

    If the product isn’t satisfactory, how much will it cost to return, including shipping costs and restocking fees? How much time will your staff waste dealing with a cumbersome return process? Will your operations be impacted by not having a working product in place?

     

    1.) Return policy

    Quality and price are both important factors, but you also need to consider service after the sale to get the full picture. Here are a few aspects you’d be wise to look into before making final decisions on purchasing:

     

    Since many IT purchase decisions are made to mitigate costly problems, the financial hits will likely continue until the issue is resolved, so it’s best to avoid returns whenever possible. Most importantly, make sure you can return your purchase in the first place! Sometimes, products are final-sale—especially those that are very low-cost (i.e. used goods or items sold by cut-rate vendors).

     

    2.) Warranty

    Warranties apply to the state of the product when you purchased it. If something is wrong with the product, the vendor will repair or replace it at no charge, as long as the warranty—or subsequent warranty extension—is in effect.

     

    3.) Service agreement

    When you’re dealing with IT hardware and software, you can expect ongoing improvements to be released and applied in the form of updates and new versions.

     

    These updates are made for a variety of reasons, including boosting general performance, introducing specific features and addressing recently discovered security vulnerabilities. Operational losses due to outdated hardware or software can be very costly, so service agreements are essential for IT products that are critical to business functions.

  • Usually, the more complex an IT purchase is, the more service after the sale impacts TCO. If you’re not careful, the cost of poor service can easily exceed the initial investment.

     

    Many companies without experienced IT departments are tempted to make price the driving factor in their IT purchase decisions. We urge companies to evaluate not just cost, but the quality and service after the sale as well. And remember, above all else, the best thing you can do when purchasing hardware and software is to get a second opinion from a competent IT provider.

     

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Wrapping up what we’ve learned about creating your IT budget

 

If you’re ready to save up to tens of thousands per year and enable your staff to feel better equipped to do their jobs, don’t delay on getting your IT infrastructure organized. Ultimately, we know how you can get a higher level of support for a fraction of the cost. If you’re looking to create a better IT budget, for starters, we urge you to download this ultimate guide as a convenient PDF so you can have your own copy to read at your leisure.

 

Essentially, it all boils down to your equipment and the services you’re getting. The tips discussed in this article, as well as this one—another valuable resource on the basics of perfecting your IT budget, which can be downloaded at absolutely no cost to you—will do you well when sitting down to plan your budget for the year.

 

You don’t need to go it alone, though. When planning your IT budget, you can also reach out to our experts, who are standing by ready to help in any way they can. MyITpros has many years of experience advising clients across various industries on the best practices for setting their IT budget, along with other valuable guidance. We would be happy to provide consultation for your small business, just as we have for many others before you.

 

We can consult with you on the best technology to purchase, train your staff on best ways to keep your company safe in the face of ever-present digital security threats and offer more predictable billing than pay-per-fix services—as well as provide lower costs than what an in-house, full-time staff requires.

 

 

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