How Much Should a Small Business Spend on IT?
Small businesses with 1-50 employees typically spend 6.9% of revenue on IT, or roughly $1,800-$4,000 per employee per year on a lean SaaS-first stack. Here is how to allocate that budget effectively.
6.9%
Average IT/Revenue
1-49 employees (all industries)
$1K-$3.5K
Per Employee/Year
Typical SMB range
31%
Cloud Share
Of SMB IT budgets
10-15%
Security Share
Of IT budget; ~10.9% measured 2025 (IANS)
Typical SMB IT Budget Breakdown
| Category | % of IT Budget | Monthly (25-person company, $2.5M revenue) | What Is Included |
|---|---|---|---|
| Cloud and SaaS tools | 31% | $1,600-$2,400 | Microsoft 365/Google Workspace, CRM, project management, video conferencing |
| Hardware | 22% | $1,100-$1,700 | Laptops, monitors, networking equipment, printers (amortised over 3-5 years) |
| IT Staff / MSP | 20% | $1,000-$1,500 | Managed service provider retainer or fraction of IT person's salary |
| Outsourced/Specialist IT | 15% | $750-$1,200 | IT projects, developers, consultants, one-off implementations |
| Security tools | 8% | $400-$600 | Antivirus/EDR, backup, MFA, password manager, email filtering |
| Telecoms and connectivity | 4% | $200-$300 | Business broadband, phone system, mobile data |
Managed Services vs. In-House IT: Decision Framework
| Factor | Managed Service Provider (MSP) | In-House IT |
|---|---|---|
| Typical cost | $50-$150/user/month | $60K-$90K salary + benefits |
| Best for headcount | 5-75 employees | 75+ employees |
| Coverage hours | 24/7 with SLAs | Business hours (unless on-call) |
| Breadth of expertise | Multi-specialist team | Generalist (1 person) |
| Response time | Defined SLA (4h, 8h, etc.) | Variable, immediate if available |
| Regulatory compliance | Often included | Requires additional skills |
| Scalability | Scale up/down with headcount | Fixed cost, hard to scale |
IT Budget by Company Size
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IT Budget Optimization
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Cybersecurity Budget Guide
SMBs are the most common ransomware target. How much to allocate.
Frequently Asked Questions
How much should a small business spend on IT per month?
Small businesses with 1-50 employees typically spend $500-$5,000 per month on IT, depending on industry and headcount. A 10-person professional services firm might spend $1,500-$3,000 per month on SaaS tools, cloud infrastructure, and security. A 40-person manufacturing company might spend $3,000-$6,000 per month including ERP licensing. The per-employee cost is typically $150-$350 per employee per month across the SMB segment.
Is it cheaper to hire an IT person or use a managed service provider?
For businesses under 50-75 employees, a Managed Service Provider (MSP) is usually more cost-effective than a full-time IT hire. A full-time IT person costs $60,000-$90,000 per year in salary plus benefits, training, and management overhead, totalling $80,000-$120,000 all-in. An MSP for 30-50 users typically costs $3,000-$7,500 per month ($36,000-$90,000 per year) and provides broader expertise, 24/7 coverage, and defined SLAs. Above 75-100 employees, the economics usually tip in favour of a dedicated hire.
What IT tools does a small business actually need?
Essential tools for most small businesses: (1) Email and productivity suite - Microsoft 365 or Google Workspace ($6-$22/user/month), (2) Password manager and MFA - 1Password Business or similar ($5-$8/user/month), (3) Endpoint protection - antivirus/EDR ($3-$8/user/month), (4) Cloud backup - Backblaze Business or Veeam ($5-$10/user/month), (5) Business continuity tool - UPS for key systems. Optional but valuable: VPN for remote workers, mobile device management (MDM), email security filtering. Avoid over-buying enterprise tools at SMB scale.
What are the biggest IT budget mistakes small businesses make?
The most common mistakes are: (1) Underinvesting in security until after a breach - SMBs are the most common ransomware target because they are perceived as easy wins, (2) Relying on consumer tools for business use (free Gmail, consumer cloud storage) which creates data governance and compliance risks, (3) Not budgeting for hardware refresh - computers older than 4-5 years are a productivity and security liability, (4) Ignoring backups until data is lost - the 3-2-1 rule (3 copies, 2 media types, 1 offsite) is non-negotiable, (5) Signing long-term software contracts without understanding the exit path.
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