How Should a SMB Budget for IT?

Consider your current and future needs — and keep an eye on the competition — when allocating tech resources

Setting strategic and efficient budgets is a top priority for businesses of all sizes and types, but for small and medium-sized businesses (SMB), it’s an even greater concern. When resources are limited, every dollar has to be allocated for maximum impact.

The key to setting the right budget for a SMB is understanding your current needs and weighing them against your expectations for developments in the future. In other words, what technologies are empowering your business today and how will your usage of them change in the coming months and years? 

Will you be implementing new systems and processes, entering new markets or courting a new class of customers, strengthening relationships with your current stakeholders, or launching a new product or service? If the answer to any of those questions is yes, your IT expenditures will almost certainly be affected.

Knowing what types of systems your business relies on is an important first step. It’s equally necessary, however, to determine how critical those systems are to daily operations. Some businesses can survive several hours of downtime with minimal disruption. For others, an unplanned service outage that lasts just minutes can be catastrophic. Businesses with that level of vulnerability devote more substantial slices of their budget to time-sensitive redundancies in their IT infrastructure.

In short, setting an IT budget for a SMB is a matter of aligning your investments as closely as possible to your real-world needs, risks, and priorities.


Current Trends

Capterra, a company that offers research and user reviews of business software, recommends businesses stay apprised of how the competition is spending its tech dollars. “It’s important to know what companies like yours are buying and how much they’re investing, or you risk falling behind,” they wrote in their 2019 report of SMB tech budgeting.

They asked 700 SMBs about the top technology priorities in their 2019 and 2020 purchasing plans. The most commonly reported investment was in finance and accounting software (54%), but they also indicated that they intended to devote resources to digital marketing (45%), HR software (43%), project management platforms (40%), and business intelligence and analytics (35%).

IT spend among SMB varies greatly by industry. According to IT research firm Computer Economics, financial service firms devote far more of their revenue to technology (4.4 to 11.4%) than, for example, manufacturers (1.4 to 3.2%). IT spend as a percentage of overall revenue is only one benchmark for budget monitoring. It’s also useful to consider IT spend per employee, per user, or per device).

Spiceworks, an online community for IT professionals, researched SMB tech spending in its 2020 State of IT report. It found that small companies (1-99 employees) reported the following allocation of their tech dollars:

  • Hardware (35%)
  • Software (31%)
  • Cloud Services (22%)
  • Managed Services (11%)

Technology spending as a percentage of total revenue broke down to:

  • Security (7%)
  • Collaboration and Communication (6%)
  • End User Hardware (22%)
  • Servers (9%)
  • Networking (4%)
  • Storage and Backup (10%)

The most common hardware that small businesses were purchasing included:

  • Desktops (19%)
  • Laptops (18%)
  • Servers (17%)
  • Printers (8%)
  • Networking Gear (7%)
  • Security Appliances (6%)
  • Tablets and Mobile Devices (5%)

The most common software purchased included:

  • OSes (16%)
  • Industry-specific Apps (11%)
  • Productivity Suites (11%)
  • Security Platforms (9%)
  • IT Management (9%)
  • Virtualization Software (8%)
  • Backup and Disaster Recovery Solutions (8%) 

Technology is taking an increasing slice of overall budgets across industries. CompTIA, a information technology certification firm, analyzes SMB technology buying trends. Their studies show that 64% of small businesses say that “technology is a primary factor in pursuing their business objectives.”

The areas they would like to increase their investment in technology, in order of most cited to least, are:

  • Integrating New Platforms (38%)
  • Security (35%)
  • Data Management (35%)
  • Modernizing Aging Systems (31%)
  • Improving ROI on Existing Technologies (31%)
  • Hiring Technology Experts (30%)
  • Customer Relationship Management (28%)


Growth in Emerging Tech, Professional Services, and Cybersecurity 

Emerging technologies, like Internet of Things (IoT) networks, drones, and artificial intelligence, are also gaining attention among SMBs, with 53% of owners saying they represent an opportunity, and 33% are already investing in cutting-edge business solutions to increase productivity, boost customer demand, differentiate themselves from the competition, and avoid obsolescence. 

Not all IT spend goes towards new projects, however. It is also often devoted to fine-tuning existing programs to discover areas that can be improved, inefficiencies that can be rooted out, and improving adoption and utilization rates.

Perhaps, the most notable trend among SMBs regarding their IT budgets is the growing number of professional service providers, such as accountants, lawyers, and marketers, that have begun offering technology services to their customers. They are selling proprietary software products, access to online portals, security auditing services, and other digital products that barely even existed only a decade ago. In fact, this new revenue stream is growing faster than the rest of their businesses.

Another trend affecting SMB IT budgets has been the rapid and alarming spread of cybersecurity threats and reputation-harming data disasters. Cloud security provider Armor enlisted 451 Research to study cybersecurity investment by SMBs, finding that expenditures are growing by almost 15% a year.

Cloud security, in particular, was cited as a major and growing security challenge for SMBs. 64% said they were attempting to manage multiple cloud systems on their own. Yet, they also report continued investment in cloud-based platforms, saying they expect to “spend more of their budgets on security tools delivered from the cloud while decreasing spending on people and commercial off-the-shelf software and hardware over the next two years.”

The key additions to SMB budgets associated with security include firewalls, VPNs (virtual private networks) and end-to-end network monitoring and hardening, which has become particularly important with the rise of distributed workforces. Remote work, once associated primarily with enterprises, is now common in organizations of all sizes, necessitating upgraded security measures to ensure all connections, whether coming from the next office or across the globe, are visible, auditable, and secure.


SMBs Want More IT, but Aren’t Sure How to Go About It

According to CompTIA, the average small business thinks they are underspending on business technologies, but are overwhelmed by the vast number of competing products and services available. They spend, on average, between $10,000 and $49,000 annually on technology, and are willing to devote a greater percentage of their revenue if they had a better idea of where to direct their money. Only 22% of small business owners polled said they were spending too much on technology.

It’s a growing problem. In 2016, 23% of respondents said they were “excelling in technology vision and strategy.” Three years later, only 18% would make that claim. The report noted: “Many firms are taking two steps forward and one back as they navigate these new learning curves.”

Do you need help efficiently allocating your technology resources and preparing for tomorrow’s challenges? D2 Integrated Solutions takes a forward-looking, pragmatic, and collaborative approach to IT. Reach out today.