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This is not an easy question to answer. I like to start by referring to some research and surveys conducted by the Gartner Group, TechTarget, or other analysts. The most common range they talk about is 4% to 8% of Gross Annual Revenue for small to medium retail or distribution businesses.

I’m not convinced this applies to every business, and there are many variables to consider, but if we use these numbers as a starting point, with annual sales of $250,000, the budget range is between $10,000 and $20,000.

To reiterate, for a business with sales of $1,000,000 annually, that’s between $40,000 and $80,000 for information technology spending every year.

I tend to make more conservative recommendations. In my experience, especially because technology is a moving target, I believe a company should overhaul their I.T. systems every 3 years using those numbers as a guideline, and then spend about half of that amount in years 2 and 3 on maintenance and support. To clarify, with sales of $250,000 that’s $10,000 to $20,000 in year 1 and $5,000 to $10,000 in each of years 2 and 3.

The thing that trips up a lot of business decision makers (especially entrepreneurs, who by nature are incredibly shrewd) is that this can’t be looked at as discretionary spending… in 2014, I.T. is a crucial part of most businesses. What we really need to do is quantify the benefits of that spending– analyze the Return on Investment if you will. We can help you to do just that. To have a deeper conversation about this, give us a call– one of my most important services for our clients is Mentoring. My background in Accounting, Auditing, Business Analysis, and Technology can help provide answers to these questions.