Determining an IT Budget

Last Friday, I was the guest speaker at a CFO round-table group where the topic of IT budgeting came up. Folks wanted to know what the “average company” spent on IT-related items. An interesting question… so upon returning to the office, I did some research.

CIO Magazine conducts an annual State of the CIO survey and gathers data to compile an average spending budget across numerous companies. In reviewing 2013 results, the average IT budget, as percent of revenue, was 5.2%. This was a slight increase from the 2012 average, which was 4.7%. Overall, businesses tend to average between 4-6% of their revenue on IT, the range ultimately recommended by CIO Magazine.

Interestingly, small and medium businesses often outspend larger ones when it comes to their IT budget. The average small company (less than $50 million in revenue) was found to spend an average of 6.9% of their revenue on IT. Small companies can often be more nimble, adopting new technologies more quickly, and often look initially to innovate through technology to spurn further growth as opposed to hiring to get more done. However, the companies that invest the most in IT aren’t necessarily the best performers. No matter the budget, if investments aren’t made wisely, the return on investment through increased revenue, decreased expenses, or improved productivity will not be achieved.

— Dave DelVecchio