How Much Should a Small Business Spend on IT? A Budget Guide

Most small businesses set next year's IT budget by copying this year's number and adding a few percent. That works until the year every laptop bought in the same quarter turns five, or the year a server reaches end of support. So how much should a small business spend on IT? The useful answer is not a single figure. It is a budget built line by line, then checked against two benchmarks: IT spend as a share of revenue, and IT spend per employee.

This guide is for the owner, controller, or office manager at a 10 to 200 person business putting together the 2027 budget. It shows how to run both checks on your own numbers, what published benchmarks say and where they stop being useful, a fill-in table of the categories that belong in the IT line, where the MSP fee sits inside it, and a worked example for a hypothetical 40-person firm. The goal is a number you can defend to a partner or a lender, not one you inherited.

How much should a small business spend on IT? Start with two checks

Before you look at anyone else's benchmark, compute your own. Start by totaling what you actually spent on technology over the last twelve months:

• Your MSP's monthly fee, or the salaries and benefits of anyone whose job is IT
• Software subscriptions and licenses, from Microsoft 365 or Google Workspace to accounting, CRM, and industry applications
• Hardware bought during the year: laptops, desktops, servers, firewalls, switches, and Wi-Fi
• Security tools and services billed outside the MSP fee
• One-time projects: migrations, office moves, new sites

Benchmarks do not all count the same things, so write down your definition (for example, whether you include phones and internet service) and use it every year. A consistent definition matters more than a perfect one.

Then run the two checks:

• Share of revenue: total IT spend divided by annual revenue, times 100.
• Per employee: total IT spend divided by headcount. Count the people who actually use your systems, including part-timers and regular contractors with accounts.

You need both because each one hides something the other shows. A distributor with high revenue and a small office can look cheap as a share of revenue while its people work on aging machines. A labor-heavy services firm can look expensive on the same measure while spending a modest amount per person. When the two checks disagree, the per-employee number usually says more about whether your people are equipped to do their jobs.

IT budget as a percentage of revenue: what the benchmarks say

Published benchmarks are useful for direction and risky as targets. Most come from organizations far larger than a 10 to 200 person business, so read the "who it covers" column before you read the number.

Three things to take from the table:

• Industry moves the number more than size. Avasant's industry research puts it plainly: "the effect of organization size is far less than the deviation by industry sector." A wealth management firm and a machine shop can both be spending the right amount at very different percentages. If your industry is not in the table, that is because we could not find a free, current, sourced figure for it, not because it is average.
• Small organizations often feel underfunded. In a separate 2020 study of 51 very small organizations, defined as under $50 million in revenue or under $1 million in IT operating spend, Avasant found that 65% considered their IT budget somewhat inadequate and 8% very inadequate.
• The median is a trend line, not a verdict. Avasant itself says its all-industry figures should be used "as an indication of overall trends, not for benchmarking specific organizations." Lean harder on your industry and on your own year-over-year trend.

If you want a sense of total dollars rather than percentages, GTIA's SMB Technology and Buying Trends 2025 report found that "nearly two-thirds of SMBs are set to spend between $25K and $1M on tech this year," with a sweet spot of "about $50K - $250K, depending on the size of the business." GTIA does not publish its sample definition alongside the figure, so treat it as a rough range, not a benchmark.

What about IT cost per employee?

The large benchmark firms do measure IT spending per user, but those figures sit behind paywalls, and the per-employee numbers that circulate online rarely trace back to a source you can read. Treat your per-employee figure as a trend line instead: compute it every year with the same definition, and be able to explain every move.

One useful floor: if you use an MSP in the $100 to $250 per user per month range in our managed IT services pricing guide, support alone runs $1,200 to $3,000 per person per year, before a single license, laptop, or project.

What belongs in a small business IT budget

A total is hard to defend. Categories are easy to defend, because each one has an owner, a driver, and a reason it moved. Build the budget in these six lines, then add them up. The share column is illustrative, rounded from the worked example later in this guide. Replace it with your own numbers.

If you carry cyber insurance, the premium usually sits with your other insurance, but the controls the insurer requires belong in the IT line.

Two lines get skipped most often. Hardware refresh gets skipped because nothing breaks the year you skip it. Contingency gets skipped because it looks like padding. Both come back as emergencies. A steady cycle avoids the spike: Avasant's research found a median PC refresh cycle of four years, so on that cycle you replace a quarter of the fleet every year. "Last year plus 3%" is how a hardware refresh becomes an emergency: the year nothing was replaced looks like savings, and the bill arrives all at once when the oldest machines fail together.

Where the MSP fee sits, and what it usually does not cover

If you work with a managed service provider, its monthly fee is usually your support line and part of your security line. It is not the whole IT budget. The pricing guide covers how MSPs price, so this section only covers where the fee fits.

Read every quote for what sits outside the monthly number. Common exclusions:

• Hardware. The MSP may source and install it, but you pay for the equipment.
• Software licenses. Some providers resell Microsoft 365 and other subscriptions on the same invoice. The license cost is still a separate line from the support fee.
• Projects. Migrations, office moves, and major upgrades are usually quoted separately.
• After-hours and on-site work beyond what the contract includes.
• Security layers the base plan does not include.

A business that budgets the MSP quote as the whole IT line meets the rest of the budget as surprises. If you are still deciding between a provider and a hire, the MSP vs in-house IT comparison walks through what each option really costs once benefits, coverage, and tools are counted. For reference, the Bureau of Labor Statistics puts 2025 median pay for computer support specialists at $62,890 a year, before benefits.

Why your number might sit above or below the benchmark

A benchmark is a reference point, not a target. These are the most common, legitimate reasons a small business lands away from it:

• Regulated or sensitive data. If you handle health records, payment card data, or client financial data, expect to spend more on logging, backup, access control, and the documentation an auditor, insurer, or customer asks for. That is the cost of being able to show evidence, not overspending.
• Remote and hybrid staff. Every person who works away from the office needs a managed laptop, stronger identity controls, and support that does not depend on walking to a desk. Expect a higher per-employee number.
• Growth. Hiring ahead of revenue means buying hardware and licenses before the revenue arrives, which pushes the share-of-revenue figure up for a year.
• Deferred hardware. Windows 10 support ended on October 14, 2025. Businesses that kept Windows 10 machines can buy Extended Security Updates at $61 per device for the first year, and Microsoft doubles the price every year after, for up to three years. For a machine still on Windows 10 in 2027, that means paying the doubled second-year price, plus the first year if you skipped it, because the updates are cumulative. On the server side, Windows Server 2016 extended support ends in January 2027.
• Rising hardware prices. Gartner forecast in February 2026 that PC prices would rise 17% during the year on the back of memory costs, Computerworld reported. Price next year's laptops from a current quote, not from what you paid three years ago.
• A lean, cloud-first setup. A small team on laptops and cloud apps, with no servers and one office, can legitimately sit below the benchmark.

Below the benchmark is not automatically good news. Underspending shows up later as downtime, not as savings: the server that fails in its eighth year, the backup nobody tested, the laptop that takes ten minutes to start every morning for three years.

A worked example: a hypothetical 40-person firm

Here is the method applied to a hypothetical professional services firm with 40 employees and $6 million in annual revenue. Everyone works on a laptop, most applications are in the cloud, and one aging file server is still running Windows Server 2016. Every price below is an illustrative assumption, not a quote or a market rate. Substitute your own.

Now run the two checks:

• Share of revenue: $148,500 divided by $6,000,000 is about 2.5%. That sits a little under Avasant's 2.9% all-industry median, which is a sanity check, not a grade.
• Per employee: $148,500 divided by 40 is about $3,700 per person. Track that figure next year with the same definition.

Then compare it with the copy-forward method. Suppose last year's actual spend was $118,000, because no laptops were replaced and no project ran. Last year plus 3% gives $121,540. The category budget comes out about $27,000 higher, which is almost exactly the $17,000 hardware refresh plus the $10,000 server project the copy-forward method would have missed. That is the conversation to have with a partner or lender: not "IT went up 26%," but "here are the ten laptops and the server that reach end of life next year."

Build the budget before you collect quotes

Set your category budget first, then talk to providers. You will know what the support and security lines can carry, and every quote can be measured against a number you already defend. Compare managed IT providers in your state and line their quotes up against your budget, category by category. To test a support figure before the first sales call, run your users and devices through the MSP cost calculator.

Frequently asked questions

What percentage of revenue should a small business spend on IT?

There is no single right percentage. The largest current benchmark, Avasant Research's Computer Economics study for 2025/2026, puts operational IT spending at a median of 2.9% of revenue, but it only covers organizations with at least $50 million in revenue or more than $1 million in IT spending. The same research shows industry moves the number more than size: in Avasant's 2021 figures, financial services ran from 4.4% to 11.4% of revenue and discrete manufacturing from 1.4% to 3.2%, at the 25th and 75th percentiles. Use those figures to sanity-check a budget built by category, not as a target.

How much does IT cost per employee for a small business?

There is no free, checkable per-employee benchmark, so build the number up instead. If you use an MSP in the $100 to $250 per user per month range from our pricing guide, support alone is $1,200 to $3,000 per person per year, before software, hardware, security, or projects. The hypothetical 40-person firm in this guide comes to about $3,700 per employee in total. Compute your own figure every year with the same definition and explain every change.

What should be included in a small business IT budget?

Six lines: support (your MSP fee or IT salaries), security tools and services billed outside the support fee, software licensing and subscriptions, hardware refresh on a replacement cycle, one-time projects, and a contingency of around 10% for failures and emergency work. Building the budget by category makes every line explainable, which a single total is not.

How often should a small business replace computers?

Avasant's research found a median PC refresh cycle of four years. Whatever cycle you choose, budget a fixed share of the fleet every year, a quarter of it on a four-year cycle, so replacement is a steady line instead of a spike. Check end-of-support dates too: Windows 10 support ended in October 2025, and Windows Server 2016 extended support ends in January 2027.

Is an MSP cheaper than hiring an in-house IT person?

It depends on your size and how much coverage you need. The Bureau of Labor Statistics puts 2025 median pay for computer support specialists at $62,890 a year, before benefits, tools, training, and cover for vacations and sick days. An MSP fee in the $100 to $250 per user per month range costs $24,000 to $60,000 a year for 20 users, and $48,000 to $120,000 for 40. Compare the full cost of each option, not the salary against the quote.

Should a small business budget IT as a percentage of revenue?

Use percentage of revenue as a check, not as the method. Revenue can fall in a year when your license seats, laptops, and security obligations do not, and a budget set as a fixed percentage will cut the wrong things. Build the budget from categories, then compare the total against a revenue benchmark and your own trend from prior years.