The rapid growth of the technology sector has augmented the use of IT in many business functions from IT systems, software, and cloud storage. This created even more possibilities such as the ability to have all the data of a company accessible with a single click, the transparency in an organization where all their files are organized in one location, and more.
However, it may prove to be difficult to properly allocate a proper budget for IT, with most business owners shelling out the same figures each year. The proper capital allocation is vital in every business, more so for small and medium-sized businesses. This is why knowing the costs of IT is crucial to tell how much budget is needed to be set aside for it.
IT Spending Trends
The general trend has been that IT budgets have been increasing each year since 2013, with the average company spending 6.9% of its revenue on IT, while medium-sized businesses spend up to 4.1%. In 2018, IT spending has been 2.7%, and the following year in 2019 has decreased to 2.5%. The change of percentage is not a sign that people do not need IT anymore but that the revenue of the company is also growing at a much larger pace than its spending on IT.
Given these numbers, it is important to remember that spending the most does not always equate to the best. On average, small and medium-sized businesses are more frugal with IT spending.
Breaking down IT Costs
Determining the IT costs for each business is very subjective, as each business has its own unique requirements. But the cost of IT can be broadly classified into the following categories:
- Hardware (the devices such as laptops, smartphones, etc.)
- Software and services (applications, SaaS, and cloud)
- Personnel (salary, training, hiring)
- Interruptions
It is easy to estimate the prices of the first two, the hardware and software, as these are priced upfront, and the person leaves you with either hiring in-house IT employees or outsourcing them. Given this information, one can say that a company with more devices is more likely to incur more support hours. One IT systems calculator estimates that one device or server to be about 25 hours per year, with an hour costing $100 per hour. That is one way to make a rough estimate on the minimum cost of support you can expect to pay, as support is usually the bulk of most IT costs.
The tricky part is the interruptions or downtime, as these usually come unexpectedly. Downtimes do not just disrupt the workflow of the day, but can potentially harm and tarnish your company’s reputation. The cost of downtimes can be computed by calculating how many hours per year the downtime takes and multiplying it to the average hourly rate of the employee. That is then multiplied by the total number of employees you have in your organization, and when added up it can be quite costly.
How to reduce these costs?
As both hardware and software are a major necessity for companies to work properly, you are left to cut costs on the latter two, the personnel and interruptions. Downtime cannot be completely erased but it can be prevented and properly managed to lessen its impact. The proper IT management is enough to combat downtimes as it can make your system less prone to downtimes, help your business be better equipped when it comes down to it, and make sure your business can quickly get back on its feet following an interruption.
Another is the personnel costs, and it has been often said that outsourced IT services are the more cost-effective option as opposed to in-house IT personnel. This is good for smaller businesses as they can leave the IT technicalities to the experts, leaving them time to focus on their own work. Managed IT services are the flexible option that can fill in the gaps and support parts of the network that need regular maintenance while giving you the liberty to turn them on or off at any given time. With these managed IT service providers offering subscription-based packages, it becomes the more economically sound option, given it gives you access to IT knowledge and to the latest trends without worrying about your current employee’s training. These usually provide a comprehensive support system to ensure as little to no downtimes as much as possible.
At the end of the day, no matter how much you spend on IT, the important part is the right strategy in minimizing risks and preventing security breaches as much as possible. Instead of getting overwhelmed by the thought of the IT costs, it is more important to familiarize oneself with the challenges you can expect to face to better prepare yourself and your business.
How can you strengthen your budget?
Identifying the right cost reduction measures takes careful consideration. Thankfully, today’s technology provides small and medium-sized businesses (SMBs) with some opportunities to cut costs without sacrificing sales.
Here are five ideas you can implement now to strengthen your budget.
1. Outsource IT
There is a natural desire to keep everything in-house. It seems cost-effective, it “feels” more secure, and it’s the way you’ve always done it. When you review the costs, you are likely to find that isn’t the case.
Technology becomes outdated rapidly. The investment you make today is unlikely to deliver a return before it is necessary to upgrade. You’ll invest budget, time, and productivity trying to find the right IT solution for your SMB. Managed Service Providers (MSPs) work with multiple companies and are experts in IT. Their business is based on providing the best technology for organizations to thrive.
Another significant benefit of working with an MSP is the ability to scale up and down depending on your business. If something changes and you need more support to open a new office, your MSP can quickly deliver resources for that project. You aren’t locked into big capital expenses or direct hiring expenses.
2. Process improvement
Many companies get bogged down with the concept of “that’s how we’ve always done it.” Don’t fall into this trap. You should always be on the lookout for ways to streamline your processes. Otherwise, you’ll hire more staff than you need, and productivity will suffer. It can be challenging to see where to optimize your operations. Working with a trusted advisor brings the benefit of an independent view of your approach and methodologies.
3. Automate with software-as-a-service
Automation goes hand-in-hand with outsourcing IT and process improvements. Historically, businesses would purchase software and manage their installation across individual computers. It takes an admin to maintain and keep all the instances updated. SaaS changes this approach with the software hosted on the provider’s servers. Updates are made by the provider and then pushed out to users. The model makes it much easier for businesses to stay current with the latest versions.
Additionally, traditional on-premise software installation generally requires large upfront purchases. You base the purchase on the number of users you expect to support with the software, and that’s it. If you need to add users, you need to buy more software. There is no going back.
SaaS is typically a subscription-based service. You can scale up or down based on the subscription level. The SaaS providers generally offer free online training to make sure users can get the most out of the software. It is hosted on the provider’s servers, which means there isn’t a required hardware server purchase. You just need to maintain an internet connection.
4. Travel costs
The first half of the year has shown that many in-person business meetings can be effective with video conferencing. There are significant costs associated with travel to customer sites. In addition to the fees for airlines and mileage, a one-hour meeting can consume the entire day for the team attending. Video conferencing enables the group to meet whenever it is convenient, regardless of the attendees’ physical location. There are a number of enterprise-quality video conferencing applications that provide an outstanding visual experience and security.
5. Cybersecurity
Security might not come to mind when you consider cost reduction tips. Unfortunately, with cybercrime continuing to grow, your business can’t ignore the risk. If your company is hit with ransomware, it could end up costing hundreds of thousands to recover. There can be fees involved if customer data is stolen and potential government fines. One approach to save costs is to hire a company to manage your cybersecurity. It can be bundled into your MSP contract to deliver significant cost efficiencies.
Want to learn more about cost reduction techniques for your company? Talk with our consultants at BlackPoint IT Services. We can provide a free IT assessment to show you how to improve your IT services and increase efficiencies.