The technology sector’s rapid growth has augmented the use of IT in many business functions, from IT systems, software, and cloud storage. This increased use has created even more possibilities, such as having all the company’s data accessible with a single click, and transparency in an organization where employees can access all their files in one location.
It may be difficult for some companies to properly allocate a reasonable budget for IT, with most business owners shelling out similar figures each year. Correct capital allocation is vital in every business, more so for small and medium-sized enterprises. Knowing the costs of running an in-house IT department is crucial to tell how much budget to set aside.
The general trend has been that IT budgets have increased yearly since 2013. The global spending on IT is $4.6 trillion and has increased by 5.5% since 2022. Companies are looking to digital technologies to transform their value propositions, increase revenue and improve client service. Even though there’s an increase in overall IT spending, companies are decreasing their spending on internal IT competencies. They’re choosing to retain fewer staff and look to external IT services to meet their needs.
Several factors, including the cost of labor, drive the move from internal to external. It’s important for us to take a look at how much IT costs businesses to understand why companies are making this shift
Determining the IT costs for each business is very subjective, as each company has unique requirements. But the cost of IT can be broadly classified into the following categories:
One of the most considerable costs you’ll incur is labor costs. Experience levels vary, but the average IT management salary is $151,983 annually as of 2021. On top of the base salary, you must consider benefits, taxes, and insurance. You’ll also need to pay recruitment and onboarding costs and incur training costs to ensure your IT department is well-equipped and skilled.
Even once you’ve incurred these expenses, there’s no guarantee the employee will stay. The time spent managing your IT teams and department can also cost companies tens of thousands of dollars.
Every business experiences downtime that costs them money and time and impacts business operations. The downtime IT departments experience is typically more costly than other departments. When an IT department is down, it can cost small and medium businesses up to $50,000 per hour. Overall, businesses lose productivity and experience disruptions and challenges in generating revenue.
There’s also a range of disruptions that can cause downtime, such as data breaches, loss of data and backup failure.
Once you’ve hired IT professionals, you still need to train and upskill them to run your department efficiently and effectively. Technologies are constantly changing, and you must equip your team to stay updated with changes and new features. Your team needs to handle all of your business’s IT needs, from desk tickets to server upgrades.
Companies generally train their IT departments using various resources — classes and seminars, course materials or training materials. Some companies also choose to bring in consultants for one-on-one training.
Your IT department will need various hardware and software to operate the department. Communication is also essential for an IT department, so you’ll need to consider purchasing at least one mobile device for each employee. You’ll also need to budget to update your hardware as it ages and account for regular software updates. Your hardware and software will also need regular maintenance, so you must budget for annual upkeep and support fees.
The price of running an IT department can quickly add up. You may first think that the cost of staff is their salaries, but the expenses increase once you add up the cost of training, tools and downtime.
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.
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.
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 will likely find that isn’t the case.
Technology becomes outdated rapidly. You’ll invest budget, time, and productivity in finding the right IT solution for your SMB. Managed Service Providers (MSPs) work with multiple companies and are experts in IT. Their business model is to provide 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 have more freedom without significant capital expenses or direct hiring expenses.
Outsourcing to an MSP also allows you to cut down on infrastructure costs. You can migrate to your MSP’s data centers, saving you hardware, energy and space costs.
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 take time to see where to optimize your operations. Working with a trusted advisor brings the benefit of an independent view of your approach and methodologies.
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. The provider makes updates and then pushes them 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. The provider hosts it on their servers, so there isn’t a required hardware server purchase. You only need to maintain an internet connection.
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 convenient, regardless of the attendees’ location. There are a number of enterprise-quality video conferencing applications that provide an outstanding visual experience and security.
Security might not come to mind when you consider cost reduction tips. Unfortunately, your business can’t ignore the growing risk of cybercrime. If your company gets hit with ransomware, it could cost hundreds of thousands to recover. You can face penalties or potential government fines for compromised customer data. 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.
Running an internal IT department can quickly add up. Besides the cost of labor, you’ll also have to consider the costs of tools, training and downtime. There are several ways to reduce your costs, and one of them is to outsource your IT department.
At BlackPoint IT Services, we provide businesses with comprehensive Managed IT Services to ensure their operations run smoothly and efficiently. By choosing to outsource to us, you gain the expertise of professional IT services and free up your business from the pressing challenges of managing an IT department.
Want to learn more about cost reduction techniques for your company? Talk with our consultants today!
