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Last month, I promised an article with budgeting data, recommendations, and excitement. Here it is: how much, why, and what businesses budget for technology. My only request is that you make it past the “How much” section to get to the exciting “Why” and “What” sections, enabling you to create a proper budget that is a recipe for your business success.
How much should I spend on IT?
There are surveys taken every year by CIO magazine, Gartner, and many other very reputable market research firms that are often publically available (though sometimes not). I recommend you read the summaries. If you are in a specific industry, look for guidance at a specific organization that tracks this type of data. The following are a few examples of these reports.
Health care specific: MGMA Cost and Revenue Survey lists $20,693 per FTE physician in 2014.
Non-Industry specific, percentage: CIO Magazine’s State of the CIO survey for 2013 lists technology spending at 5.2 percent of annual revenue.
Non-industry specific, cost per employee: Computer Economics has a free annual IT Spending and Staffing Benchmark that states the costs of IT have come down in recent years to $7,581 per employee per year.
Technology is not a one-time or up-front investment. It’s every year, just like marketing or sales. I recommend that customers budget an amount equal to 4 to 6 percent of your top line revenue. If your business is in a state of rapid growth, in need of an overhaul, or recovering from prior budget cuts, then 5 to 7 percent would be a better choice. Spend too little and your day-to-day business processes will be affected. Spend too much and you might be wasting that hard-earned revenue.
Why would I spend this?
After completing the math from above, many of you might say, “Why would I spend that much on technology?” There are some great reasons that I think you’ll agree with.
These are just a couple examples.
What should I spend my budget on?
Now that we have your shiny new budget numbers fresh in that spreadsheet, how do you break that down? This is a list of the items that should be included in everyone’s budget.
Technology is an investment in your business and one that can be very rewarding by giving your business the ability to grow, increase profitability, and compete locally or worldwide. Budgeting for your technology and sticking to the budget is the path to predictable results and costs for your business.
Matt McDermott is the owner of 43Tc and a guest writer for CBT.