It’s a question we hear over and over again from our clients: Am I spending too much on IT? When people ask this, it seems they really want to know two things:
1) Whether their spending in line with that of other small businesses
2) What they can do to rein in their costs if it’s out of line.
You’ll find the answer to both questions in this post.
An Acceptable Range (And A Benchmark For Comparison)
When clients first began to approach me to ask what their IT spend ought to be, I wasn’t entirely sure how to answer. After all, it depends 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 I still think it’s generally true that some types of businesses will be likely to spend more on IT than others.
Even with all those variables, though, “we’re not sure” just didn’t seem like an adequate answer for our clients. So 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. 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 company size, industry represented and other factors.
We also found that the range we calculated tracks 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 now with confidence that their spending is in line with other companies in North America. It may be more than $6,847 if their business is very technology-driven or less if it's not – but if it’s within that range, it’s probably fair to say they don’t need to be concerned that they’re spending too much.
But what if your IT spend is far greater than those amounts?
Diving In Deeper
If you’re spending much more for IT than the numbers cited above, start by taking a closer look at how that spending breaks out. Our analysis of our clients’ budgets looks like this:
As with total dollar costs, the exact percentage within each category will depend on the type of business and the company’s technology needs, but these are roughly how the percentages break out.
If your total spend is out of line with our calculations and if any one of these categories is also out of line, it may be time to examine what’s going on and what you can do to reduce your costs.
Three Ways To Rein In Your IT Spending
1. Switch to a managed services model.
Your business may be spending more than necessary on IT because you’re supporting an internal IT department. Maintaining a fully staffed and trained IT department doesn’t generally make economic sense. After all, you’re not in the technology business; you’re not making money from your investment in in-house IT. By outsourcing to a managed services provider, you’ll have a fixed monthly cost that’s likely to be lower than paying a qualified professional’s salary in-house. And 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.
2. Right-size your IT infrastructure.
In our experience, 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 and 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 what you can do about it if so. 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, from hardware manufacturers to software vendors to providers of voice and data services. And if you’re not a technology expert (and why should you be?), it may be challenging to determine whether you’re paying a fair price for the technology you use. We had one client who was spending $1500 a month on their voice and data network, for example, 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 them.
The bottom line: The more you know, the better you can control what you spend on IT. It starts with knowing what you’re spending, then knowing how it stacks up against other businesses and, if it’s out of line, knowing what to do about it. If you have questions about how to increase your knowledge in this area, we’re always happy to help.
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Bill McCharen, COO
Our goal for this blog is to answer the questions you ask. If you have any questions about cloud computing or any other topic please email me at email@example.com. To learn more about IT subscribe to our blog.