IT budgets are frequently set by looking at last year and adding a little. That works until a server fails or an insurer asks a question nobody can answer. Here are the benchmarks worth measuring against.
What percentage of revenue should go to IT?
Australian small and medium businesses typically spend between 3% and 6% of revenue on IT. Where you sit depends mostly on how dependent your operations are on technology and how much compliance obligation you carry.
| Business type | Typical share of revenue |
|---|---|
| Professional services (legal, accounting, financial) | 4% to 6% |
| Healthcare and allied health | 4% to 6% |
| Construction and trades | 2% to 4% |
| Retail and hospitality | 2% to 4% |
| Technology-dependent or regulated businesses | 6% or more |
How much per employee?
A useful cross-check is $2,000 to $5,000 per employee per year for total IT spend. Within that, managed IT support typically accounts for $1,200 to $2,400 per employee annually, with the balance going to licensing, hardware and security tooling.
If your total is well below $2,000 per employee, something is usually being deferred rather than saved. The most common candidates are hardware replacement and security tooling, both of which are invisible right up until they are not.
What should the budget actually cover?
- Managed IT support. The recurring monthly fee, typically $900 to $2,500 for an SMB.
- Software licensing. Microsoft 365 and any line-of-business applications.
- Hardware replacement. Best treated as an annual provision rather than a periodic shock.
- Cybersecurity. Endpoint protection, email filtering, and awareness training.
- Connectivity. Internet, failover, and phone systems.
- Backup and disaster recovery. Including offsite retention.
- Project work. Migrations, office moves and upgrades, which should be forecast rather than discovered.
- Contingency. Around 10%, because hardware fails on its own schedule.
The categories most businesses forget
Hardware replacement as an annual provision
Laptops last three to four years. A business with twenty laptops needs to replace roughly five to seven every year. Treating that as a recurring annual cost rather than an occasional crisis is the single biggest improvement most SMBs can make to IT budgeting.
Compliance work
If tenders or insurers are likely to ask about Essential Eight or ISO 27001, that work has a cost and a lead time. Discovering it during a tender response is expensive and sometimes disqualifying.
The cost of downtime
Not a line item, but it belongs in the reasoning. If ten staff at an average $45 per hour cannot work for four hours, that outage cost $1,800 in idle wages alone, before considering lost revenue or reputational damage. Two of those a year fund a meaningful amount of prevention.
Where the money is usually wasted
- Licences for departed staff. Extremely common and entirely avoidable.
- Over-licensing. Paying for premium tiers where the features are never deployed.
- Overlapping tools. Two backup products, or security tooling duplicating what Microsoft 365 already includes.
- Break-fix on ageing hardware. Repeatedly repairing equipment that should have been replaced.
A licensing and environment review will usually find some of the above. Xen IT includes one in our free IT assessment, and you keep the findings whether you engage us or not.
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