How much money do businesses spend on IT?

Businesses have never been more reliant on IT to deliver their services and to remain competitive.

Whether it’s a sole trader equipped with a laptop and subscriptions to cloud-based administrative and financial software, or a multinational company with its own advanced software solutions and a sizeable IT department, every business is paying for IT.

IT budgeting and spending are critical considerations for any business.

With that in mind, how much do companies spend on IT?

What is an IT budget and why is it important?

An IT budget is the company’s expected expenditure on technology and other related services over a fiscal year.

The budget will typically include expenses like hardware, software, cybersecurity, salaries, consultancy fees, and any other related costs.

Its purpose is to ensure the company has enough resources set-aside to support its IT operations, while keeping costs under control.

An IT budget sets spending limits for spending on technology. Without a cap, companies may be at risk of overspending or making poor spending decisions. That’s why a budget gives structure to IT spending, helping companies plan effectively.

An IT budget also increases the chances that money will be well spent on investments that are aligned with the company’s broader business goals.

For example, a proportion of the IT budget can be allocated for investment in emerging technologies and new systems that could potentially drive growth and give the company a competitive advantage.

IT spending by industry 2024

Every year, surveys are conducted that ask how much do companies spend on IT around the world and by sector.

While completely accurate figures can be hard to quantify, some estimates pub global IT spending at around 4.5 trillion U.S. dollars.

Of course, budgets differ widely across countries, sectors and businesses.

Small start-ups may only require very basic IT services, such as laptops, broadband access, and subscriptions to cloud-based administrative and financial services.

After an initial outlay, their IT budget may only be a few hundred pounds a year. This can rise to tens of thousands of pounds for large companies with complex IT infrastructure, support, and technical services.

Here’s a brief overview of how different sectors typically spend their IT budget:

Financial services

The financial sector is one of the largest IT spenders in the UK. Investments in advanced digital services, robust cybersecurity measures, and emerging financial technologies dominate. With service delivery being increasingly digital, companies in the sector are investing heavily in new technologies such as AI.

Healthcare

IT spending is continuing to rise in the healthcare sector. Electronic health records, AI-enhanced diagnostic tools, and telemedicine platforms have the potential to transform how healthcare is organised and delivered.

Retail

UK retailers are expected to continue their substantial investment in IT in the short term. Their primary focus is on cloud solutions, digital customer engagement platforms, and AI-driven services. Retailers are also using technology to optimise supply chains and automate inventory management.

Manufacturing

Manufacturers are predicted to invest heavily in IT over the coming years to streamline their production processes and improve the efficiency of supply chains. The sector is exploring new technologies that can optimise its operations, improve productivity, while reducing costs.

Energy and utilities

Across the energy and utilities sectors, investment in infrastructure management and data analysis are supporting a clear shift towards renewable energy and improved service delivery.

How much should a company spend on IT?

There are no hard and fast rules about how much a company should spend on IT.

Typically, budgets will depend on several factors, such as the size of the business, the industry it operates in, the particular technologies it needs, as well as its strategic goals.

Small businesses, with fewer than 50 employees, will typically spend around six to seven per cent of their revenue on IT.

For medium-sized enterprises with fewer than 250 employees and a turnover of less than £50 million, the IT budget is typically around four to five per cent of revenue.

For larger companies with more than 250 employees and a turnover above £50 million, the figure is around three to four per cent of turnover.

In other words, larger companies have significantly higher IT budgets than their smaller counterparts, but it works as a lower percentage of their income.

How to set an IT budget

If you run a smaller company, your IT budget is likely to be limited but could still represent a significant percentage of your turnover.

This means that great care needs to be taken at the planning stage, ensuring there’s no waste spending and that sensible buying and investment decisions are made.

When setting a budget, company managers will typically consider factors like strategic goals, the state of the current IT infrastructure, the services that are required, and what the overall business budget will allow.

Make an honest assessment of your IT needs, looking at what’s essential (and what might not be) that could add value to your business.

Then make a hard-headed strategic decision about what is realistic and achievable.

Taking care of current needs, while ensuring you can still invest in new technologies for the future, is a balanced strategy taken by successful companies.

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