How to Build an IT Budget for a Small Business (With Real Numbers)

The question we hear most often in discovery calls is some version of: “How much should we be spending on IT?” The answer depends on your industry, headcount, and risk tolerance — but the framework is the same regardless.

Here is how we help clients build an IT budget that covers what matters and skips what does not.

The industry benchmarks

Gartner and Deloitte publish annual IT spending benchmarks. For small and mid-sized businesses in the 10-100 employee range:

• General services/professional firms: 4-6% of revenue
• Healthcare: 5-8% of revenue (compliance overhead)
• Financial services: 6-10% of revenue
• Construction/trades: 2-4% of revenue
• Restaurants/hospitality: 2-3% of revenue

These percentages include everything: hardware, software, cloud subscriptions, MSP or in-house IT staff, telecom, security tools, and project work.

For a $3M-revenue professional services firm with 25 employees, that means $120,000-$180,000 per year in total IT spend.

The line items

1. Managed IT services (or in-house staff)

This is the biggest line item for most SMBs.

Model	Typical cost (25 seats)
Fully managed MSP	$2,725-$5,625/month ($109-$225/seat)
Co-managed (MSP + internal IT)	$1,500-$3,000/month + salary
In-house IT hire	$7,500-$10,800/month (fully loaded)

The MSP vs. in-house cost comparison breaks this down in detail. The short version: a single in-house IT person costs roughly $90,000-$130,000 fully loaded and gives you one human with one area of expertise, vacation days, and sick time.

2. Hardware lifecycle

Plan for a 4-year replacement cycle on workstations and a 5-year cycle on servers and network infrastructure.

Item	Per-unit cost	Replace every
Business laptop	$800-$1,500	4 years
Desktop workstation	$600-$1,200	4 years
Monitor (27”)	$250-$400	6 years
Network switch (24-port)	$300-$1,500	5-7 years
Firewall	$500-$2,500	5 years
Wireless access point	$200-$600	5 years
Server (on-prem)	$3,000-$15,000	5 years

Budget tip: divide the total replacement cost by the cycle length to get an annual hardware reserve. For 25 workstations at $1,000 each on a 4-year cycle, that is $6,250/year set aside.

The cycle is not optional any more. Machines that cannot run a supported version of Windows are a security line item, not a performance one, which is what the end of Windows 10 support means for a business.

3. Software and cloud subscriptions

Service	Per-user/month	Annual (25 users)
Microsoft 365 Business Premium	$22	$6,600
Line-of-business app (EHR, ERP, CRM)	$30-$150	$9,000-$45,000
Accounting (QuickBooks/FreshBooks)	$30-$80	$360-$960
Cloud backup	$3-$8/endpoint	$900-$2,400
Password manager	$4-$8	$1,200-$2,400

4. Security stack

If your MSP includes these in the managed fee, do not double-count. If not, budget separately.

Tool	Per-endpoint/month	Annual (25 endpoints)
EDR (SentinelOne, CrowdStrike)	$3-$8	$900-$2,400
Email filtering (Proofpoint, Mimecast)	$3-$6	$900-$1,800
Security awareness training	$2-$4	$600-$1,200
DNS filtering	$1-$3	$300-$900
Dark web monitoring	$1-$2	$300-$600

Cyber insurance carriers now require most of these controls. This is not optional spending anymore.

5. Telecom and connectivity

Service	Monthly
Business internet (primary)	$100-$500
Backup internet / SD-WAN	$75-$300
VoIP phone system	$20-$35/user ($500-$875 for 25)
Mobile device management	$3-$8/device

Budget the VoIP line carefully. That $20-$35 is the license only, and it is roughly where the real number starts rather than where it lands — handsets, the circuit underneath, porting, E911, and taxes all sit outside it. What business VoIP actually costs breaks out the whole bill in the order it hits you.

6. Project work (the line item everyone forgets)

Budgets that cover only recurring costs blow up when something non-recurring happens: an office move, a new location, a server migration, a compliance audit, a camera system, cabling for a renovation.

Rule of thumb: reserve 10-15% of your total IT budget for project work. For a $150,000 annual IT budget, that is $15,000-$22,500 set aside for one-off projects.

Services like structured cabling, security cameras, IT relocation, and design-build fall into this bucket.

The total picture

For a 25-person professional services firm:

Category	Annual range
Managed IT services	$32,700-$67,500
Hardware lifecycle reserve	$6,000-$10,000
Software/cloud	$18,000-$55,000
Security stack (if not in MSP)	$3,000-$7,000
Telecom	$8,000-$20,000
Project reserve	$10,000-$20,000
Total	$77,700-$179,500

That works out to $3,108-$7,180 per employee per year, or roughly 2.6%-6.0% of a $3M revenue business. Right in the benchmark range.

Three mistakes that blow budgets

1. No hardware reserve. A $30,000 surprise when 25 laptops hit end-of-life in the same quarter. Smooth it out with an annual set-aside.

2. Counting MSP fees as “the whole IT budget.” The MSP fee covers operations. It does not cover hardware purchases, software licenses you own directly, telecom, or project work. Budget the full picture.

3. Skipping the security stack because “we have antivirus.” Antivirus is not EDR. A ransomware incident costs the average SMB $200,000+ in downtime, recovery, and reputational damage. The security line items above total $3,000-$7,000/year. That is insurance.

Build your own estimate

Use our MSP cost calculator to model the managed services portion, then layer in the other line items from the tables above. Or schedule a free 30-minute assessment and we will help you build the full budget in context.