What’s an Average IT Budget for a Small Business?

Technology is no longer a luxury for small businesses—it’s the backbone of daily operations, customer interactions, and long-term growth. But knowing how much to spend on IT can be confusing. What’s “enough”? What’s too much? And how do you know if your business is under-investing in tech?

Let’s break down what the average IT budget looks like for a small business, why that number can vary widely, and how to build a smarter, future-proof IT plan.

The Numbers: What’s Considered “Average” for Small Business IT Spend?

Most small businesses spend between 2% and 7% of their annual revenue on IT. According to data from Deloitte and Gartner, businesses with less than $50 million in annual revenue typically average around 4% to 6.9%, depending on industry and operational complexity.

Here’s a general guide based on company size:

• Businesses with 10 to 49 employees often budget between $125 to $175 per seat per month.
• If a business needs advanced security and has compliance reporting needs, this cost can increase by $50 to $75 per seat per month.
• A small business with 10 employees can expect to spend $20,000 to $30,000 on IT annually.
• A 10-person company earning $1 million in top-line revenue can expect to spend $2,000 to $3,000 per month on IT.

But these are just benchmarks. The most effective IT budgets are shaped by more than just revenue—they’re shaped by risk, regulation, goals, and technology maturity.

What Drives Your IT Budget? The Variables That Matter

Industry and Compliance Demands

Businesses in highly regulated industries—like healthcare, finance, or legal services—naturally spend more on IT. Not only do they require robust security protocols, but they also need compliance reporting, encrypted data handling, and regular audits. For example, a small clinic bound by HIPAA regulations might have significantly higher IT costs than a local boutique retail shop.

Business Size and Growth Plans

Larger businesses often benefit from economies of scale, which can reduce their IT spend as a percentage of revenue. However, smaller businesses in growth mode may need to invest more upfront to modernize outdated systems or support a distributed workforce. If your business is expanding, launching new products, or onboarding remote staff, your IT budget should scale accordingly.

Infrastructure Health and Complexity

Outdated tech is a hidden cost. Aging servers, unpatched software, and legacy systems may not create immediate problems—but they increase risk and long-term costs. If your business has neglected its tech stack, your budget may need to cover replacements, cloud migration, and improved security.

Technology Support and Staffing

The level of support you need—from a fully managed service provider (MSP) to internal IT staff—plays a critical role. Businesses that outsource IT entirely might have more predictable monthly costs but higher total spending, whereas companies with an in-house team will incur staffing, tools, and training expenses.

What Should Be Included in a Small Business IT Budget?

The biggest mistake small businesses make when budgeting for IT? Treating it like a one-time project rather than an ongoing investment.

An effective IT budget should reflect your total cost of ownership (TCO) across all technology-related assets and services. That includes:

• Hardware: From laptops and servers to networking gear and backup systems
• Software: Business applications, operating systems, productivity tools, and license renewals
• Cybersecurity: Firewalls, EDR/MDR, encryption, and employee training
• Cloud Services: Storage, hosting, collaboration platforms, and backup
• Support Services: Managed IT support, helpdesk, remote monitoring, and vendor management
• Telecom: Business internet, VoIP, mobile and data plans
• Compliance and Risk Management: Security audits, data protection strategies, and regulatory readiness
• Training and Employee Enablement: Helping staff get the most out of your technology investment

A study from CIO.com emphasizes that small businesses who neglect comprehensive budgeting often find themselves overspending due to reactive fixes or “fire drills.” A clear budget, especially one that looks 1–3 years ahead, helps avoid surprises and supports smarter purchasing decisions.

Why Many Small Businesses Underinvest in IT (and What It Costs Them)

It’s common for small business owners to see IT as a cost center rather than a strategic asset—until something goes wrong. According to research from Techvera, many small businesses spend far below recommended benchmarks and delay critical investments like data backups, security updates, or cloud migrations.

The result? Increased downtime, lost productivity, and in worst cases, cyberattacks. A 2023 report from IBM estimated the average cost of a data breach for small businesses at $2.98 million—a potentially catastrophic figure for any company operating on lean margins.

Rather than viewing IT as a “just-in-case” expense, small businesses should see it as foundational to resilience, efficiency, and customer trust.

Moving Beyond Averages: Total Cost of Ownership (TCO) as a Smarter Strategy

Many forward-thinking small businesses are shifting from basic budgeting to TCO-based planning, which includes everything from asset lifecycle management to vendor renewals and cybersecurity risks.

Deloitte’s CIO survey encourages businesses to align IT planning with long-term goals and to involve decision-makers from across departments—not just IT.

Building a TCO-based IT budget gives you:

• A full view of all tech-related costs
• Improved visibility into upcoming expenses and renewals
• Better prioritization of capital projects and upgrades
• Stronger justification for tech investments tied to business outcomes

You don’t need to be a large enterprise to benefit from this approach. Even a spreadsheet that tracks devices, licenses, service contracts, and hardware replacements can provide clarity and help avoid surprises.

So… What Should You Be Spending?

Let’s break it down with some practical examples based on company size and revenue:

• Company A has 10 employees and brings in $1 million in annual revenue. A typical IT spend for a business this size might be around $2,000–$3,000 per month, totaling $24,000–$36,000 per year. This supports essential infrastructure, endpoint protection, and help desk support—with room to scale for future needs.
• Company B has 25 employees and compliance requirements. They might budget around $175 per seat per month, with an additional $50–$75 per seat for enhanced security and reporting. That’s roughly $5,625–$6,250 per month, or $67,500–$75,000 per year, supporting advanced threat detection, compliance tools, and managed cloud services.
• Company C earns $5 million annually and has 50 employees across hybrid work environments. Their annual IT investment could range from $150,000–$250,000, especially if they rely on strategic consulting, proactive cybersecurity, and optimized cloud platforms.
  

Pro Tip: While revenue is a helpful benchmark, your ideal IT budget should align with your business goals, risk profile, and operational complexity—not just your top-line numbers.

Final Thoughts: IT Is an Investment, Not a Sunk Cost

If there’s one takeaway here, it’s this: Your IT budget shouldn’t be driven by fear of spending—but by a clear understanding of what your business needs to stay secure, competitive, and scalable.

Every dollar you invest in proactive IT planning saves time, reduces risk, and positions you for growth. Whether it’s budgeting for better cybersecurity, smarter cloud infrastructure, or support that keeps your team productive, the smartest small businesses treat IT like a revenue enabler—not a recurring annoyance.

In a world where your systems are your storefront, your server is your safe, and your software is your sales engine, investing wisely in IT isn’t optional. It’s essential.

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