Many SMBs don’t actually have an IT budget; they have a list of last year’s expenses. Everything goes into one bucket, and next year’s “budget” is simply whatever they spent the year before.
The overlooked part?
They budget for ongoing MSP support but ignore the strategic investments that prevent downtime, improve security, and drive growth.
A strategic IT budget (also called a technology budget) gives you clarity, control, and a proactive plan for investing in the right technology at the right time. It should include monthly IT support, software subscription costs, and annual strategic projects to keep your business protected, compliant, and scalable.
Why Both Monthly and Annual Budgets Matter
A balanced technology budget ensures your business is covered in the short term and the long term.
1. Avoid Surprise Expenses: Monthly budgeting keeps expenses consistent, while annual planning prevents a $25K hardware refresh from blindsiding your cash flow.
2. Meet Cyber Insurance Requirements: Carriers expect layered security, documented security controls, and an Incident Response plan.
3. Stay Compliant: Regulations like CMMC, HIPAA, GLBA, etc., aren’t optional. Budget for them or face penalties.
4. Enable Strategic Growth: IT isn’t just about support; it’s about enabling scalability, productivity, and business continuity.
5. Eliminate Hidden SaaS Waste: Without a planned budget, many SMBs overspend on software subscriptions, called SaaS sprawl, paying for unused licenses, duplicate tools, or subscriptions that continue running quietly in the background. (More to follow in Part 2)
Monthly / Recurring IT Costs
These are the predictable, ongoing expenses you’ll see every month in your technology budget:
- Core Monthly IT Support: MSP contract, help desk support, monitoring, patching, and backups.
- Cybersecurity Stack: Antivirus/EDR, MFA, MDR, 24/7 SOC monitoring, password managers, and compliance tools such as SIEM.
- Cloud & Infrastructure Subscriptions: Core cloud platforms like Microsoft Azure, Google Workspace, or cloud file storage that power your day-to-day operations.
- Collaboration Tools: Microsoft 365, Teams, SharePoint, Zoom, or similar platforms that enable communication, hybrid work, and productivity.
- VoIP / Cloud Phone Systems: Cloud-based business phone services such as RingCentral, Zoom Phone, Microsoft Teams Phone, or 8x8 that support calling, texting, voicemail, and unified communications.
- Business- or Industry-Specific Applications: Online tools that support critical business functions such as finance, marketing, HR, sales, operations, and project management. These include specialized line-of-business (LOB) systems like EHR platforms (for healthcare operations), CRMs (for client and sales management), and ERP platforms (used for managing core business functions like inventory, finance, HR, supply chain, and operations).
Common cloud-based software subscriptions also fall into this category, such as QuickBooks Online, Docusign, Dropbox, Zoom, Adobe, HubSpot, Asana, Bamboo HR, or other tools your team relies on to run daily operations.
- Device & SaaS Management: Mobile device management, email security, and cloud backups.
These are your “keeping the lights on” costs. Essential for day-to-day business operations.
Annual / Strategic IT Costs
A strong SMB IT budget plan goes beyond monthly recurring services. These annual or project-based investments protect your business, maintain compliance, and support long-term growth. Many of these are planned expenses, while others are triggered by technology aging, regulatory changes, or business expansion.
- Hardware Refresh Cycle: A rolling annual expense to replace aging equipment on a planned schedule. Most SMBs follow a lifecycle of 3–5 years for laptops and 5–7 years for servers, firewalls, and networking gear. Instead of replacing everything at once, budget for a predictable percentage of hardware to be refreshed each year to avoid costly spikes and reduce downtime.
- Software Renewals & Compliance Requirements: Annual requirements for CMMC, NIST, HIPAA, GLBA, SOC 2, and FTC Safeguards.
- Annual Cyber Insurance Premiums: Budget for annual premium increases as cyber incidents rise. Most carriers now require baseline controls like MFA, EDR, secure backups, and incident response plans just to qualify for coverage. Your IT budget should account for the premium cost and the security investments needed to obtain and maintain that coverage.
- Project Work and Technology Upgrades: Cloud migrations, Microsoft 365 tenant consolidations, infrastructure upgrades, new office buildouts, or application modernization projects. These typically align with organizational growth or strategic initiatives.
- Training & Security Awareness Programs: Annual or quarterly investments in employee cybersecurity training, phishing simulations, and executive-level security coaching. Because human error drives most SMB breaches, regular training reduces that risk.
- Strategic IT Consulting: Technology Reviews with your MSP to evaluate business goals, cybersecurity posture, technology alignment, and long-term budget forecasting. A strategic IT roadmap prevents unexpected expenses and ensures IT supports growth.
- Third-Party Risk Assessments and Vulnerability Testing: Conducted annually or semi-annually to evaluate vendor security, uncover vulnerabilities, and validate compliance with frameworks like CMMC, NIST, HIPAA, GLBA, and FTC Safeguards. These tests help confirm the effectiveness of your security controls and uncover hidden risks before attackers do.
These are the strategic investments that protect your business from risk and ensure compliance with cybersecurity and regulatory requirements.
Rule of Thumb: How Much Should Small Businesses Spend on IT?
Most SMBs should expect to spend 7% of their annual revenue on IT. But the exact amount depends on factors like industry, growth phase, and risk tolerance. A common approach is to allocate this budget to key areas like infrastructure, cybersecurity, and collaboration tools, prioritizing investments that directly support business goals.
The 7% Rule:
- 50% → Monthly recurring (support, cybersecurity, cloud tools)
- 50% → Annual strategic (hardware, compliance, projects)
Key Factors That Influence Your IT Budget
- Industry: Regulated industries require specialized software and stricter compliance standards, which increase IT costs. For example, healthcare practices and financial institutions often spend more per user due to HIPAA and GLBA regulations.
- Growth Mode: A company in a rapid expansion phase will likely need to invest more in scalable systems to support new users and cloud infrastructure.
- Reliance on Technology: Businesses that depend heavily on technology for daily operations, such as cloud-based tools, remote collaboration or multi-location networks, typically need higher IT budgets.
- Risk Tolerance: How long could your business function without technology during a cyberattack or outage? Your risk tolerance will influence how much you allocate to security, backup, and disaster recovery solutions.
For SMBs in the Northwest, planning your IT budget around these principles will help you stay competitive, secure, and compliant.
You've Built Your IT Budget, But Are You Throwing Money Away?
Most businesses unknowingly waste 30-40% of their SaaS spending on licenses no one uses, tools that overlap, and subscriptions that auto-renew long after employees have moved on. The average company uses only half of the software they're paying for, meaning you could be hemorrhaging thousands of dollars monthly without realizing it. It's called SaaS sprawl, and it's one of the biggest hidden drains on SMB budgets.
In Part 2 of this series, we'll show you exactly how to identify the waste, eliminate redundancies, and squeeze every ounce of value from your existing technology investments.
Final Thoughts
Your technology budget is more than a cost plan; it’s a strategic risk management tool. By planning for both monthly and annual IT needs, you’ll:
- Stay compliant with evolving data protection regulations.
- Reduce downtime and financial risk.
- Improve productivity and collaboration.
- Build a foundation for scalable, secure growth.
Pro Tip: Review your IT budget with your Managed Service Provider (MSP) during your Strategic Business Reviews (SBRs). This ensures your technology investments evolve alongside your business goals and compliance requirements.
Not sure if your IT budget aligns with your business goals?
Book a discovery call with Teknologize. We'll help you identify gaps, optimize spend, and build a roadmap for growth.
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FAQ: IT Budgeting for Small Businesses
Q1: How much should small businesses spend on IT?
Most SMBs should plan to spend about 7% of their annual revenue on IT. Highly regulated or tech-reliant industries may spend closer to 10%.
Q2: What should an IT budget include?
A complete IT budget includes:
- Monthly costs (MSP support, cybersecurity tools, cloud subscriptions)
- Annual expenses (hardware refreshes, compliance renewals, vulnerability testing, and cyber insurance).
Q3: How often should I review my IT budget?
At least once a year during your Strategic Business Review, or more frequently if your business is growing rapidly or adding locations.
Q4: What’s the biggest mistake SMBs make with IT budgets?
Focusing only on recurring costs and forgetting to plan for annual projects, compliance, or risk assessments, which can lead to costly surprises.
Q5: How can an MSP help with IT budgeting?
A trusted MSP like Teknologize provides visibility into your full technology stack, helps identify overspend, aligns IT with compliance frameworks, and builds a roadmap that supports business growth.
About Teknologize
Teknologize is a SOC 2 Type I accredited Managed IT and Cybersecurity provider serving small to mid-sized businesses across Washington and Oregon. We deliver full-service Managed IT Support, Co-Managed IT Support, advanced Cybersecurity Solutions, and IT Compliance Services for regulated industries, including Healthcare, Financial Institutions, the Utilities Sector, Manufacturing, and Professional Services.
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