Every few months a business owner here in Denton County asks us a version of the same question. “Are we spending too much on IT?” It is fair and frustrating, because the honest answer starts with another question: compared to what? IT is not one line item. It is a pile of laptops, subscriptions, internet circuits, security tools, and human help assembled over years by several different people, usually without anyone writing down why.
So we do what accountants do with any messy number. We break it into cost per employee. It is not a perfect unit, but it travels well. It lets you compare this year to last year and sanity check a proposal without an engineering degree. What follows is how we think about the buckets, what moves the number, and how to tell the difference between spending too little and spending badly. Those two problems look nearly identical on a spreadsheet and require opposite fixes.
Why Per Employee Is the Right Unit, Until It Is Not
Most technology cost follows people. Every person needs a device, a mailbox, a license, a phone, and somewhere to call when it breaks. That is why per employee math beats the percentage of revenue benchmarks in big consulting reports. A twelve person company doing $2 million and a twelve person company doing $9 million often run nearly identical technology. The revenue percentage would call them wildly different. They are not.
Where the unit breaks down is anything that scales with buildings instead of bodies. Firewalls, switches, cabling, and internet circuits are priced per location, so a three person satellite office can carry the same network hardware as headquarters. With multiple sites, run per employee math for the company and look at per location infrastructure separately.
For scale beyond your own walls, Gartner forecast in 2026 that worldwide IT spending would reach $6.37 trillion, up 14.2% over the prior year. That is direction, not a budget. Nobody’s budget is an average.
The Five Buckets Your IT Spend Falls Into
Before you can judge a number, you have to know what is inside it. Almost every technology dollar lands in one of five buckets. Sort your last twelve months this way.
- Hardware, amortized. Laptops, monitors, docks, printers, switches, firewalls, access points, and any servers you still run. Do not count these the year you buy them. Spread the cost over the expected life, typically three to five years for a computer. That turns a scary occasional expense into a predictable one.
- Software and licenses. Your productivity suite, accounting package, CRM, and the industry specific application that actually runs your business. As a public reference point, Microsoft listed Microsoft 365 Business Basic at $7.00 per user per month paid yearly and Business Premium with Copilot at $32.00 per user per month paid yearly on its 2026 plan comparison page. Confirm current pricing before you budget.
- Connectivity. Primary internet circuit, a backup circuit if uptime matters, static addresses, business phone service, and cellular lines. Owners forget this bucket, and it often carries an old contract nobody has renegotiated.
- Security tooling. Endpoint protection, email filtering, multi factor authentication, a password manager, backup, and security awareness training. Ten years ago this barely existed for small businesses. Today it is a permanent share of the budget.
- Support. Your managed services agreement or internal IT salary, plus projects, vendor coordination, and staff onboarding and offboarding. This is where cheap gets expensive fastest, because unmanaged problems do not stay small.
Why a Law Firm and a Warehouse Land in Different Places
Two forty person businesses can have IT budgets that differ by a factor of three, and both can be right. Here is what drives the gap.
- The ratio of computers to people. A law firm runs close to one full computer per person, sometimes more. A warehouse might run one shared terminal per eight workers plus a pile of handheld scanners. Cost tracks devices, not headcount.
- Data sensitivity and regulation. Firms handling client trust accounts, medical records, or cardholder data carry security and compliance costs a distribution business does not. That is not overspending. That is the price of the industry.
- The physical environment. Blanketing 60,000 square feet of metal racking with reliable wireless costs real money in access points and cabling. A 6,000 square foot office suite does not.
- Tolerance for downtime. Redundancy is worth exactly what the outage would have cost, and that number is different in every industry.
- Software cost per seat. Specialized legal, medical, engineering, and design applications often cost more per user than the entire rest of the stack combined.
Ranges, Not False Precision
Anyone who hands you one confident dollar figure for IT per employee is selling something. What we can offer is the shape of a healthy budget. In our experience with small and mid sized businesses, a full year sorted into the five buckets tends to land roughly like this: hardware 10% to 20%, software and licenses 25% to 35%, connectivity 5% to 10%, security tooling 10% to 20%, and support 25% to 40%.
Those are working proportions from our own client base, not a published benchmark, and yours will differ. Use them as a shape check. If security tooling is 2% of your spend, you have a gap. If support is 60%, you are paying to fix the same thing repeatedly instead of fixing the cause. If hardware is 45%, you deferred replacements for years and are now paying for all of them at once.
Underspending, or Just Spending Badly?
A low number is not automatically good. A high one is not automatically bad. You are probably underspending if machines older than five years are common, if nobody has tested a backup by actually restoring a file, if one person in the building is the only one who knows how anything works, if multi factor authentication is off for email, or if every purchase happens only after something breaks.
- You are spending badly if you have three tools doing one job. Overlapping subscriptions are the single most common source of waste we find, and they accumulate quietly. Our year end review of subscription costs walks through how to catch them.
- You are spending badly if you pay for people who left. Licenses for departed employees are a cost problem and a security problem, since those accounts often still work.
- You are spending badly if you bought premium tiers nobody uses. Paying for the top plan and using three of its features is common and expensive.
- You are spending badly if you buy hours instead of outcomes. Hourly break and fix support rewards the vendor when problems recur. Read that twice. Our industry does not love admitting it.
- You are spending badly if you moved to the cloud and never turned off what you replaced. Harrison says it plainly: the cloud is just someone else’s computer. Moving there does not cancel your old server, backup contract, or license. Somebody has to actually do that.
The Bottom Line
Stop asking what IT should cost and start asking what your IT is buying. Sort last year into the five buckets, get the total per employee, and judge the shape rather than the headline. In most small businesses we meet, the real waste is not overspending. It is losing hours to half finished technology, which is the argument behind our piece on why saving time beats saving money. Budget for the outcome, review it annually, and make the number boring.
If you want a second set of eyes on your technology spend, we will help you sort it into buckets and tell you honestly where you are thin and where you are paying twice. Contact us today.
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