But they also know that these are not easy tasks, with so many variables in today’s world and the many things that compete for an executive’s attention.
In a study on company size and IT spending, ROI consultancy Alinean Inc. found that SMBs spent 6.9% of revenue on IT. Keep in mind that this is total IT cost—not just support. But is that percentage right for you, and how is that budget best broken down?
Every year, we work through our own budget and forecasting process. I know I am in the minority, but this is one of my favorite activities. The budget sets our course for the coming year and helps us know if we are on track, and if not, allow for course corrections.
Even as an IT company, we still budget for IT expenses. Over the years, we’ve developed a strategic process for building an IT budget that will set us up for a successful year. We focus on three areas in this budget line item:
I’ll walk you through the process that we use for ourselves (including real-world examples) and for our clients who hire us. We've also put together a worksheet to help you create your budget. You can download that at the bottom of this page.
-Reed Wilson, Founder & CEO
The first piece of a solid IT budget involves planning for your people needs and your growth expectations for the coming year. These two often work in tandem but can be separated if it’s helpful to focus on them individually. When thinking about these areas, we look at our existing spaces, the way our people work, and the tools that they have at their disposal.
Several years ago, we struggled with the “how” of forecasting growth. For us, this came down to understanding our sales process and keeping a pulse on the pipeline (for new business) and customer satisfaction (for existing business). Our CRM system gives us visibility into these two areas, and without access to it and an understanding of our sales process, forecasting growth (or contraction) would be really tough for us. We highly recommend using a CRM and other marketing and sales enablement tools to give you a complete picture of where you are and what’s likely to happen in the near future with your sales.
Most companies have at least one “common space” where people gather for meetings. Every year, we look at how this space is being used to determine if we need to budget for changes.
For example, a few years back we noticed that our conference space wasn’t flexible enough for us, so we got rid of our old stationary tables and chairs and added rolling tables and chairs. Now we can set that space up as a conference room, where the tables are in a rectangular format, or classroom style if we are doing internal training or hosting a customer training event.
We also focus heavily on metrics, so we invested in monitors that make our key metrics highly visible to everyone in the company. Take a look at your existing spaces to see if you should plan on making changes for next year to make your team more productive.
Occasionally, customers will renovate spaces or move to a new space entirely. This is a great time to take stock of how your team works. Plan your space accordingly!
The way that people work continues to evolve as well. More and more companies are allowing employees to work remotely. We invested in a phone system (through Skype for Business with our Office 365 subscription) that allows our team to have a single phone number regardless of where they are working or what device they are using. Each person’s presence is also available “real time,” so before someone calls a co-worker or transfers a call, they can easily see if they are available or not.
We have also moved almost all of our systems to the Cloud, allowing for ease of access regardless of where our team may be located. This has also simplified our budgeting since our Office 365 licenses are a monthly fee that we can treat as an operating expense. We no longer have to plan to update Office licenses every few years as a large capital expense.
Look at your own business. How much are you planning to grow? Will you be able to support that growth with the tools and systems you currently have in place? If yes, make sure you account for any additional costs associated with new employees (new laptops, software license fees, etc). If no, start planning for what changes you'll need to make and what investments will go along with them. Remember, if there are typically up-front costs with moving to a new system (like set up and migration costs). Don't forget these when pricing out new solutions.
Several years ago, each of our team members carried a laptop, a tablet, a smartphone, and a wireless hotspot. Today, we have consolidated these tools down to just a laptop (that can also be used as a tablet) and a smartphone (that can also be used as a hotspot, desk phone, and in some cases, a tablet too!). Ask your team members about the tools that they need to stay productive—you may find that less is more!
Read your agreements very carefully. In many cases, we see customers that agree to a certain “floor” on users in licenses or length of time in a contract. This can be very costly in cases where your business hits a bump and you need to lower your user counts. You shouldn’t be locked into an agreement that doesn’t fluctuate with your needs.
As another example, we had a customer who was two years into an ISP agreement when they moved offices. When they moved their ISP services to the new location, they were not aware that they signed a contract locking them into a new 3-year agreement.
Growth can be an exciting time for a business, but without properly planning and budgeting for it, it can become a headache. When planning and budgeting for new technology to accommodate growth, don’t wait until the last minute or until something starts to break. Successfully implementing new technology doesn’t happen overnight, so you need to allow enough time to get the solutions in place without disrupting your processes or workflow.
We always start with people and growth—because until you have a clear idea of where you’re headed and what tools your people will need to get you there, you can’t look at any other area with accuracy. But our second focus is no less important: equipment (maintenance renewals, new, upgrades and replacements).
When we do our internal budgeting process for equipment, we lump it into two broad categories. The first category is just for maintenance renewals. The second category includes new, upgrades, or outright replacements.
Maintenance renewals are very easy to maintain and budget. In most cases, we will know exactly what is renewing next year, when it is renewing, and how much it will cost. In some cases, we may decide against renewing if there is no benefit. And we make these same recommendations for our clients. An example is maintenance on an end-of-life software product where the vendor will continue to offer “support” but no enhancements. We help clients review these on a case-by-case basis.
New purchases are also easy to budget with the right visibility. We know that every three years we will upgrade an employee’s laptop. This could be very expensive if we weren’t planning for it or if we didn’t space the purchases out over time.
We also have a “standard” for each employee role. For example, our sales team uses Surface Books and our services team uses Surface Pro 4 devices. Each workstation is set up identically, which makes it easy from a support perspective and a common user experience.
We sometimes recommend to customers that they consider leasing new equipment to conserve cash. We have several customers that go this route, and it works well for them.
Upgrades can be a bit tricky, so we rely heavily on anecdotal feedback from our team to determine what we may upgrade in the coming year. We categorize anything that will improve the experience as an upgrade.
For example, in 2014 our headcount doubled but our Internet speed stayed the same. As a result, the performance of our Cloud-based systems began to erode, so we doubled our speeds in 2015. We also upgraded our wireless system in 2015 based on this growth.
Replacements could be considered upgrades—but in most cases they are done out of necessity rather than just for an increase in performance. Network equipment most frequently falls into this category. Servers may also fall into this category, but we are encouraging customers to consider moving these workloads to the Cloud where possible (to save money and increase reliability).
Generally speaking, you should expect to replace things like servers, switches, backup devices, and storage arrays every five years. Firewalls and security hardware generally are replaced every three years, simply because that is usually the vendor’s lifecycle for that equipment (although we started offering Security-as-a-Service with firewall included—so our customers don’t have to worry about replacing the device).
While average spend data is a helpful general guideline, different companies will have different needs in different years. If your company is small and growing, you may spend more than a larger, more established one. If you’re just starting to transition from outdated equipment and want to move to a more secure system quickly, you’ll have additional needs that others may not have at the same time. It’s important to determine the priority of the items you identified in the first two steps, and budget accordingly.
And before getting into specific breakdowns, you’ll first need to evaluate if you want to handle all of your IT needs in-house, outsource all of it, or use a combination of internal and external resources.
Putting together the right support model depends on what you need out of your IT department or partner company. Here are some key questions to ask yourself:
After you know the answers to these questions, picking a support model becomes less daunting. The following billing models are pretty standard in most outsourced IT companies and work well for small and midsize businesses, depending on the level of support you need.
This is the model you need if you don’t want to do anything. Essentially, you're asking your IT partner to handle everything related to IT. Typically this is done for a flat, predictable fee based on the number of assets in your environment or number of employees.
These services typically include:
Generally, the only items All You Can Eat plans don't include are large IT projects like an email migration or a custom SharePoint site. This will vary by company.
This is a good compromise if you don’t need to have a full All You Can Eat Model but don’t want to just sit around and wait for things to break. In a Monitoring Only style agreement, your IT company will monitor your environment and work to keep things running proactively. For example, they may monitor your backups, and if a backup fails, they will remote into your environment and fix it.
If you enter this type of agreement, be sure it's very clearly defined what type of work is covered under the agreement and what work is out of scope. If you're not on the same page with your IT company about what's being monitored, you could have an outage you don't know about.
This is the model you want if you want to take on some responsibility for support but would like to have your IT company on retainer to help get you out of a jam. Most IT companies will sell you a block of hours to be used in a certain period (like 10 hours a month). In return for a commitment to a certain number of hours, the solution provider will typically offer a reduced hourly rate.
This is the model you need if you want to take full responsibility. But beware of this model—very few (good) solution providers have a room of help desk engineers just waiting on the phone to ring.
While this model may seem cheaper up front, typically you're only going to call when you are in a real jam (like if you experience a failed hard drive with no backup, or get hit with ransomware), so be prepared for a rather large bill. You should always ask for an estimate before work begins and ask the company to get approval before going over the initial estimate.
Pay as You Go models also typically mean slower service. Good IT companies have service level agreements (SLAs) defining how quickly they will start working on your issue for their customers on higher level plans. These don't always apply to Pay as You Go customers, though. If you call in with an issue, you may be in the queue behind several other customers, which could be difficult if it's an urgent issue.
The models listed above are the most common types of support agreements we see today. There will, of course, be small nuances between how each company packages their services. As you're working through the model that best suits your business, here are a few questions you should consider asking your solution provider:
If you aren’t sure where to start, here is what we tell our new customers: A well-managed IT environment typically takes between .5 and 1.5 hours per user to manage and maintain.
Using that as a rule of thumb, you can come to a pretty quick conclusion on which model makes the most financial sense. A 40-person firm who relies heavily on IT will generally come out ahead in an All You Can Eat model. A 5-person start-up, however, would generally be best served with a block of time.
Bottom line: there is no perfect science, but by asking the right questions and assessing your needs, you should be able to land on a model that works for you and your team.
Palmetto Technology Group, an outsourced IT company for small to mid-sized businesses throughout the southeast, helps clients make their teams more secure and more productive, and helps them leverage their IT investment. PTG’s goal is to take the guesswork and frustration out of IT and to help customers reach their objectives as an organization.
Reed Wilson founded Palmetto Technology Group in 2007, when he saw that many small- and medium-sized companies were experiencing productivity challenges, security issues, and downtime due to relying on onsite servers and slow or outdated systems. His vision was to help make companies more productive, more secure, and smarter about how they spent their IT dollars.
Under Reed’s leadership, Palmetto Technology Group has grown substantially. The company now also consults with clients to solve a variety of business challenges related to IT and management, based on PTG’s experience and successes. PTG has won numerous awards, including Microsoft Southeast Cloud Partner of the Year 2013, 2015, 2016, Microsoft 2017 Office 365 East Region Partner of the Year, Best Places to Work in SC 2014-2018, and the 2017 and 2018 MSPmentor 501 Top IT Managed Service Providers.
If you need a way to organize your budget planning, we invite you to download the worksheet we use for this purpose. The worksheet is broken down into the areas we see the most and lets you add details like operational vs. captial expense and useage.
Included Budget Sections:
- Desktop/Laptops (Hardware)
- Servers and Networking Infrastructure (on-premises devices like servers, switches, and firewalls)
- Annualized Recurring Expenses (such as software renewals, Cloud services, IT support)
- IT Projects (server upgrades, email migrations, custom SharePoint sites, etc)
Set Yourself Up for Success:
For each item, you can choose if it's an operational or capital expense (some people like to budget for those separately). We also recommend putting in the “use” for each item—for example, if it's a laptop, enter the user's name. This helps you later when you need to come back and reference your budget for future planning.
Enter your contact information to the right and we will email you a copy of the worksheet. If you don't get it within a few minutes, check your spam folder.
If you have any questions about using the worksheet, or about budgeting for technology, we're here to help! You can reply to the email with the worksheet or send us an email at email@example.com.