A question we hear a lot from business owners is “how much should I budget for IT?” The truth (frustratingly) is that there is no simple answer. All businesses and industries are entirely different and IT budgets largely depend on size and industry, so there is no clear cut “rule of thumb.” However, the information in this article should give you a better understanding of how to determine your IT budgets for next year and what you need to consider.
To set a benchmark for IT budgets, it’s predicted that, companies within the Financial Services sector in the UK spend between 4.4% – 11.4% of their annual revenue on IT. This equates to a company with an annual revenue of £5million spending between £220,000 and £570,000 per year on IT.
2020 has been (and still is) a challenging year for everyone, and the COVID-19 pandemic will be a major contributing factor to how companies choose to budget when it comes to IT and technology next year. Read on to discover:
- How COVID-19 will impact IT budgets
- Common motivators behind IT spending
- What IT budgets should be spent on in 2021
- Budgeting and ROI
- Our number one recommendation for deciding how to budget for next year
IT budgets and COVID-19
Going into 2020, businesses were generally optimistic about investing in IT. With technology changing at such a rapid rate, it was (and still is!) necessary for businesses to prioritise IT investments to modernise and grow their businesses, ensuring not to be outperformed by more tech savvy competitors.
However, the COVID-19 pandemic threw a curveball, affecting the way that almost every single business was able to operate throughout 2020. This complicated the relationship between technology and the workplace. On one hand, businesses are hesitant about investing in IT in a bid to cut costs and protect themselves. On the other, they need to invest in technology to facilitate effective remote working, enhance cyber security, maintain functionality, and develop in line with technological advancements and customer expectations. What a lot of businesses don’t realise is that investing in technology can prove more cost-efficient – you just need to ensure that you’re implementing the right technology, at the right time, with specific goals in mind.
A report by Spiceworks Ziff Davis found that industry and company size massively impacted a business’ reluctance or openness to investing in IT next year. Overall, they found that 51% of businesses in the Financial Services sector were set to expect significant revenue increases, meaning they had bigger plans to invest in technology and modernise business processes. Moreover, they found that medium-sized businesses (with between 100-999 employees) were most likely to increase IT expenditure to enhance remote working practices and adapt to changes made due to the COVID-19 pandemic.
Those companies that do have the capability to prioritise and invest in IT next year should absolutely do so. Technology is progressing exponentially and is one of the only sectors not to have slowed down due to COVID-19. As such, you need to consider whether it’s worth the risk of putting off investing in IT and losing out to competitors who are prioritising technology.
Businesses who have a more restricted budget need to weigh up their options and prioritise the most important areas of IT for them. Consider what the impact would be if you don’t invest in any way? Can you afford the cost of a data breach due to outdated technology? Can your team function effectively when working from home or do they need additional support?
Common motivators for investing in technology:
- Enhance remote working to ensure teams can operate as normal when necessary
- Improve customer experience by making you a more reliable, efficient, or unique business to work with
- Streamline processes to save time and boost efficiency
- Maximise cyber security to prevent the possibility of a data breach
- Cut costs, safeguarding your business financially
- Automate processes, giving your staff more time to work on important tasks and upskill
- Outperform competitors and establish yourself as market leaders
- Reach more potential customers
- Ensure you’re adhering to regulations and compliance
- Drive business growth, in terms of size and revenue
- Improve employee experience, making it easier to attract and retain staff
What should IT budgets be spent on in 2021?
- IT equipment (laptops, PCs, keyboards, webcams etc.) for remote workers
- Cloud computing software to make data more accessible and secure
- Collaboration tools to ensure staff stay connected when working remotely
- Digital transformation in line with market trends and business goals – working to streamline processes, boost efficiency and revolutionise business through technology – you can find out more about digital transformation by downloading our eBook
- Cyber security solutions to maximise protection in light of remote working and compliance
- Improved training to support remote workers
- Fully managed IT support to advise on how technology can facilitate goals and help businesses to grow following a challenging 2020
Budgeting and ROI
The most important thing to bear in mind when determining IT budgets is how your business will benefit from investing in technology. These benefits can cover anything from monetary value to improved employee experience, you just need to be able to justify the reasons for investment and track its performance.
When it comes to monetary value, finding the right IT support partner is key. They will be able to advise you on the best technology to solve problems in your business, outlining exactly what the return on your investment should be.
For example, at Netstar, we’ve managed a number of different projects which have led to significant savings for our clients. Here are just two examples:
We recently managed a cloud migration for one of our clients that resulted in them saving £387.50 per month, whilst also having an improved cloud solution.
Here’s how it worked:
- Our client was previously using a hybrid cloud environment, meaning they were paying £250pcm for offsite backup, as well as £250pcm for a virtual server (£500pcm in total)
- Upon our advice, we migrated them over to a full cloud solution (including SaaS business applications, Microsoft 365, and SharePoint)
- This boosted the overall efficiency of their business, giving their employees the flexibility to work from anywhere, using any device (as all of their data is now stored in the cloud)
- Our new solution only cost £112.50pcm with an up-front investment of £5,000
- This means that their return on investment is 12.9 months, after which point, they’ll be saving £387.50 per month, whilst also benefitting from a more advanced and efficient cloud solution
One of our clients was using an inefficient and costly phone system, which was hindering the productivity of their business. We migrated them to a cloud phone system, which increased efficiency whilst also saving them around £76,900 per year!
Here’s how it worked:
- They were previously using a traditional phone system, costing approximately £84,000 annually in call charges and hardware installation/maintenance
- This was not only expensive but also inefficient, meaning staff were less productive
- Traditional phone systems only allow you to make and receive calls from the office, so employees that were on to go were regularly missing important calls
- This resulted in the Office Manager spending approximately 15% of her time redirecting calls, taking messages, and organising calls backs
- At a £35,000 per year salary, this was costing our client approximately £5,250 extra per year
- Additionally, 5% of everyone else’s time was taken up trying to reschedule calls or get back in touch with callers via telephone or email
- On an average salary of £35,000 salary for the 20 people in the company, this was costing an extra £35,000 per year
- Moreover, 25% of the 20-person workforce were in revenue generating roles, meaning they were expected to make 5X their salary
- As such, their 5% productivity loss was even more costly, losing the business around £43,750 per year
- To cut costs and increase productivity, we implemented a cloud phone system that enabled employees to make and receive calls using the office number from any device, even when they’re not in the office
- As such, the number of missed calls was dramatically reduced and all staff had more time to spend on more important/revenue-generating tasks
- Cloud phone systems also have significantly lower call charges and no requirement to invest in expensive hardware
- So, at £15 per person per month, with a one-off payment of £3,500 for installation, a company of 20 people could expect to save £76,900 per year by switching from traditional phone lines to a cloud phone system – which is exactly what our client did!
For more information on calculating ROI and the most cost-efficient IT investments for your business please get in touch.
Our number one piece of advice is to always work closely with your IT provider. They’re there to help and will be keen to ensure you’re maximising your use of technology, receiving the best return on your IT investment as possible. After all, a robust IT infrastructure is what keeps your business operational, competitive, and secure – so you can’t let it be overlooked.
To find out how we can help you to determine your IT budgets for 2021 and maximise your ROI, get in touch today.