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Are you wasting money on your IT?

The average small or medium sized business should be spending around 6% of revenue on their IT systems – Piers Linney

I was interested to read an article in this month’s Director magazine that in order to stay competitive the average small/medium sized business should be spending around 6% of revenue on their IT systems.   That’s a lot of money on IT – £60k a year for a small business turning over £1mil, or £30k for one turning over £500k.   A little on the high side in my opinion, but we have to bear in mind that Piers sells cloud computing services to SMBs.

Realistically I believe 4% is more accurate – that’s £20k for a £500k turnover business, so £1666 a month.   Still sounds high?

Let’s start by looking at what AverageBusiness Ltd might realistically use in 2014:

  • Broadband – this might be £30 a month for ADSL or if the business needs quality guaranteed bandwidth they might spend £3-400/month on a leased line. Let’s assume ADSL is fine.
  • Email – the majority of businesses should be using cloud-based email by now – it’s a no-brainer – so let’s assume AverageBusiness Ltd has 8 staff, that’s 8 mailboxes at, say, £7 a month. £56 a month.   Experience has taught me that having the emails professionally scanned, audited and encrypted is worth its weight in gold.   That’s an extra £16, so let’s say £72 a month on emails.
  • Support – assuming we have 8 computers, possibly a small onsite server to sync with your cloud services (I’m assuming nobody would go fully cloud based on £30/month ADSL!) and a variety of printers, mobile devices, etc, you’re probably looking at paying somewhere in the region of £250-350 a month for support an maintenance – more if you’re in a big city.
  • Backup – the days of the receptionist changing tapes and taking them home in her handbag are gone, it’s all online now.   £50/month.
  • Equipment – ok, you won’t refresh equipment every month but in the course of a year you might need a new PC or two, you might decide bigger monitors would be nice, you might want the latest iPhone or tablet, a new printer.   A sensible business has a programme of continual refreshment rather than waiting until things die.   Let’s be cautious at £500/month
  • Software – by the time AverageBusiness Ltd hit £500k sales a year, they needed more than just Microsoft Office. If we assume an accounts package is £50/month and a CRM is the same, plus perhaps £80/month on Microsoft’s Office 365, we have a monthly spend of £180 on software licensing. That’s without any specialist industry-specific packages.

So what are we up to? £1182/month.   Allow for some unexpected onsite support and we’re spending £1300 a month on our IT, and if ‘IT’ includes website hosting, mobile phones, maybe the internal phone system then we’re easily up to £1666 (4%).   I run an IT support business as well as working as a consultant so I’m comfortable in saying that this is normal expenditure for thriving businesses.

So back to my original point – are you wasting money on your IT?

Hopefully not!   Hopefully your IT spend is strategic – you plan where the money is best spent, ensure that your systems are flexible, scalable, resilient and reliable, and that the technology you use is helping your business to grow and improve.   Your CRM system helps to maximise your sales and marketing opportunities.  Your accounts system provides clear, accurate and timely management reports.  Your emails are always available, you don’t lose opportunities by having them incorrectly marked as spam, and your staff can access emails and documents from anywhere.   Your internet and internal systems are fast enough to let your staff work at their optimum productivity.  You replace equipment not when it breaks, but before it causes that unexpected curve ball at 4pm on a Friday just as you’re trying to deliver on a huge order.

Or do you still see IT as a necessary evil?   Do you end up spending on high reactive support fees and new equipment because things break for a pass-time, always just at the wrong time?  Does your internet connection or email go down every time you come in early to finish an important piece of work?   Are you trying to spend as little as possibly because, at the end of the day, your product or service is what people buy from you, and your computer system is just a business support function?   If this sounds a bit like you then I’m pretty certain you’re wasting money on your IT.   You’re probably not spending strategically, you’re possibly seeing peaks and troughs in your IT costs, and you probably feel frustrated or let down by your systems more often than you feel empowered or impressed.

Do you know what I find most interesting?

If you sat down and added it up, businesses who fall into the second category usually find they’re spending more over the course of a year than those who are in the first one.

Without exception, every businesses I’ve worked with to take a strategic view on IT has saved money.   Last month, I worked with a business who saved over £20,000 on a much-needed system refresh thanks to letting me work with them to think differently about IT.

So here’s one to think about tonight – are you wasting money on your IT systems, or are you investing money into something that is driving your business forward? Contact us today for more information!


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