Industry benchmarks and budgeting frameworks to guide smart investment.
Why IT Spend Matters More Than Ever
For many small and medium-sized businesses (SMBs), IT used to be thought of as “the computers and the internet.” Today, it’s much more than that. It’s the backbone of your operations — from email, video conferencing, and cloud collaboration tools, to cybersecurity, compliance reporting, and even the systems that drive customer engagement.
The truth is, technology is no longer just a support function. It’s an enabler of revenue, efficiency, and competitiveness. Whether you’re onboarding a new employee, processing orders, or keeping sensitive data safe, IT plays a role.
Your Business Is More Connected Than You Think
The fact is, your business probably relies on digital systems more than you realise. Your customer database, your payment systems, your supplier networks, even your basic email – it’s all connected to the wider digital world. And that connection, while brilliant for business, also creates opportunities for cybercriminals.
If we look at the recent attacks on major suppliers that brought down parts of the NHS and Royal Mail. These weren’t direct attacks on hospitals or post offices – they hit suppliers and caused chaos across entire networks. Your business might be small, but if you’re part of any supply chain, you could either be a target or collateral damage. And supply chain cyber attacks are very much on the rise.
The big question that many small companies ask is, how much should you actually invest?
Spend too little, and you risk:
- Downtime that stalls productivity.
- Cybersecurity breaches that damage trust and cost thousands to fix.
- Outdated systems that frustrate employees and customers alike.
Spend too much in the wrong areas, and you tie up capital that could have been used to grow your business in other ways.
The answer lies in finding the right balance — guided by industry benchmarks and a budgeting framework that’s tailored to your goals.
Industry Benchmarks for IT Spend
While every business is different, industry research offers useful benchmarks for annual IT spending as a percentage of revenue.
| Business Type / Sector | Average IT Spend as % of Revenue* |
| All SMBs (UK & Global avg) | 4–6% |
| Professional Services (legal, consulting, marketing) | 6–8% |
| Financial Services | 7–10% |
| Manufacturing | 3–5% |
| Retail & Hospitality | 2–4% |
| Tech-focused SMBs | 10%+ |
Sources: Gartner, Spiceworks Ziff Davis, CompTIA — adapted for SMB context.
A good rule of thumb is, if technology is core to your product or service delivery, lean toward the higher end of the benchmark range. If it’s more of an operational enabler, the lower end might be enough — but never so low that you compromise security, compliance, or efficiency.
Examples by Sector
Law firm with 15 staff — Needs secure document storage, compliance-ready systems, and remote access for court appearances. Likely to spend 6–8% of revenue on IT.
- E-commerce retailer — Relies on online sales, payment processing, and inventory automation. Investment may be 7–10% because IT is revenue-critical.
Manufacturing SME — Uses IT for production scheduling, quality control, and ERP, but machinery investment takes priority. IT budget often 3–5%.
Three Common SMB IT Budgeting Frameworks
1. Percentage-of-Revenue Model
This is the most straightforward approach: decide on a fixed percentage of projected annual revenue to allocate to IT (e.g., 5–8%).
Pros:
- Simple to calculate.
- Scales automatically as your business grows.
Cons:
- Can lead to under- or overspending if your business has unusual IT needs, and is not a good way to align business goals to IT budgeting.
Example:
A marketing agency with £1m annual revenue allocates 7% (£70k) to cover hardware refreshes, software subscriptions, security tools, and an MSP for support.
2. Strategic Investment Model
Instead of starting with a percentage, you begin with your business goals for the year and budget IT spending to make them happen.
Pros:
- Directly ties IT investment to ROI.
- Helps prioritise initiatives that drive growth or efficiency.
Cons:
- Requires more upfront planning and project scoping.
Example:
A professional services firm wants to move to a paperless office, implement an advanced CRM, and achieve Cyber Essentials Plus certification. The IT budget is built around these projects, even if it exceeds the standard percentage range, because of its alignment to business goals.
3. Hybrid Model
A popular choice for SMBs:
- Cover baseline operational costs (licenses, security, support) using a percentage-of-revenue.
- Add project-specific budgets for transformation initiatives.
Example:
A manufacturing business allocates 4% of revenue for ongoing IT operations, plus an extra £25k for a one-off ERP upgrade.
What to Include in Your IT Budget
A comprehensive SMB IT budget should include:
- Hardware & Devices – Laptops, desktops, mobile devices, peripherals.
- Software & Licensing – Microsoft 365, Google Workspace, industry-specific apps.
- Cloud Services – Hosting, backups, SaaS platforms.
- IT Support & Managed Services – Helpdesk, monitoring, patching, vendor management.
- Cybersecurity – Firewalls, EDR/antivirus, MFA, email filtering, training.
- Compliance & Insurance – Cyber Essentials, ISO, cyber liability insurance.
- Upgrades & Projects – Migrations, system integrations, infrastructure refresh.
- Training – User awareness, productivity tools.
- Contingency – 10–15% for unexpected needs.
Common Budgeting Mistakes SMBs Make
Focusing only on hardware and software — ignoring training, security, and ongoing support.
- Underestimating cybersecurity needs — especially with cyber insurance tightening its requirements.
- Failing to refresh ageing equipment — leading to downtime and hidden costs.
Not planning for growth — forcing expensive, rushed upgrades later.
Signs You’re Underinvesting in IT
Frequent downtime or slow systems.
- Fluctuating IT support bills.
- IT Budgeting is inaccurate with unplanned investments deemed as ‘critical’
- No medium-term plan for IT.
- Out-of-date software or unsupported hardware.
- Cyber insurance policy exclusions you can’t meet.
Employees using workarounds or personal devices.
How to Maximise ROI on IT Spend
FAudit first: Know what you have before buying more.
- Go cloud-first where possible: Reduce upfront costs and improve scalability.
- Standardise devices & software: Simplify support and training.
- Outsource smartly: MSPs can deliver enterprise-level expertise at SMB-friendly costs.
- Track usage & satisfaction: Regularly review if tools are delivering value.
Have a plan: Have a 3-year IT plan aligned with the business goals.
Quick FAQ
Q: Is outsourcing IT more cost-effective than hiring internally?
Yes — a good MSP provides a full team’s expertise for around the cost of one full-time IT hire.
Q: Should I budget for cybersecurity separately?
It should be built into your IT budget, not treated as an afterthought.
Q: How often should I review my IT budget?
Ideally quarterly to stay aligned with business changes and tech developments.
The Bottom Line
For most SMBs, 4–8% of annual revenue is a healthy IT investment range. The exact figure depends on your industry, business goals, and reliance on technology.
By combining industry benchmarks with a strategic budgeting framework, you’ll avoid the trap of “just enough to get by” and instead position IT as a driver of growth, security, and profitability.