An IT budget prevents the cycle of emergency spending and deferred maintenance that plagues most small businesses. Without one, you spend money when something breaks rather than when it makes strategic sense. Planning ahead for hardware replacements, software renewals, security tools, and support costs means fewer surprises and better decisions about where your IT dollars go. This guide walks through each spending category, gives you real numbers to work with, and shows you how to put it all together.
Why Small Businesses Need an IT Budget
Most small business owners treat IT spending as a series of one-off expenses. A laptop dies, so you buy a new one. A software renewal comes in, so you pay it. A security incident happens, so you scramble to add protections after the fact. This reactive approach almost always costs more than planning ahead.
An IT budget forces you to take stock of what you have, what you're spending, and what's coming due in the next 12 months. It turns unpredictable expenses into a manageable monthly or annual plan. It also gives you the data you need to evaluate whether your current IT spending is reasonable. If you're paying $200 per user per month for managed IT but not getting security monitoring or strategic guidance, your budget will make that gap obvious.
Budgets also matter when you apply for cyber insurance. Underwriters want to see that you're investing in security, not just hoping for the best. A documented IT budget that includes line items for endpoint protection, backup, and security training shows that you take risk seriously.
Industry Benchmarks: How Much Should You Spend
A common guideline is 3 to 7 percent of revenue for total IT costs. Businesses with simple IT needs, such as email and basic cloud apps with no compliance requirements, tend to fall at the lower end around 3 to 4 percent. Businesses with compliance obligations, heavy cloud usage, or complex technology environments typically land in the 5 to 7 percent range.
Another way to benchmark is per employee. Total IT costs (hardware, software, support, and security combined) typically run $3,000 to $7,000 per employee per year. A 20-person company should expect to spend somewhere between $60,000 and $140,000 annually on IT, depending on the complexity of its environment and the level of security required.
These are benchmarks, not rules. Your actual budget depends on your specific needs, your industry, and your risk tolerance. A law firm handling sensitive client data needs to spend more on security than a landscaping company with five employees.
Category 1: Hardware
Hardware is the most visible IT expense and the one most likely to catch you off guard if you don't plan for it.
Computers. Plan for laptop replacement every 4 years and desktop replacement every 5 years. Budget $800 to $1,200 per laptop and $600 to $1,000 per desktop. A 20-person office with 4-year laptop cycles replaces about 5 machines per year, which means setting aside $4,000 to $6,000 annually just for computer replacements.
Networking equipment. Routers, switches, and wireless access points typically last 5 to 7 years. Budget $500 to $2,000 depending on office size. If your wireless network struggles with video calls or drops connections, this line item deserves attention sooner rather than later.
Peripherals. Monitors, keyboards, mice, headsets, and docking stations wear out or need replacing when new employees join. Budget $200 to $500 per employee per year for replacements and new hires.
Printers. Replace every 5 to 7 years. Budget for the printer itself plus ongoing toner and ink costs, which can add up to several hundred dollars per year for a busy office printer.
Spare equipment. Keep one or two configured spare laptops ready for emergency swaps. If someone's laptop fails on a Monday morning, having a spare means they're back to work in minutes instead of days. Budget for these separately from your replacement cycle.
Category 2: Software and Licensing
Software costs are recurring, which makes them easier to budget for once you know what you're paying.
Microsoft 365. Athencia deploys Microsoft 365 Business Premium for its managed IT clients, which runs $22 per user per month. This license tier includes everything most small businesses need: Outlook, Teams, Word, Excel, plus Intune for device management, Defender for Business for endpoint security, and Entra ID with Conditional Access for identity protection. If you're currently on a lower-tier plan like Business Basic ($6 per user per month) or Business Standard ($12.50 per user per month), you may be paying separately for security tools that Business Premium already includes.
Line-of-business applications. CRM, accounting, practice management, and project management tools vary widely. List every tool your team uses, what it costs per user or per month, and when the renewal date is. Tracking renewal dates in one place prevents surprise charges and gives you a chance to evaluate whether you still need each tool.
Security software. Endpoint protection, email security, and a password manager typically add $5 to $15 per user per month on top of your Microsoft 365 license. Tools like Huntress Managed EDR (which layers 24/7 human threat hunting on top of Microsoft Defender) and 1Password for credential management are common additions for businesses that take security seriously.
Backup services. Microsoft 365 does not fully back up your email, OneDrive, or SharePoint data. A dedicated backup solution like Dropsuite runs $2 to $5 per user per month and protects you against accidental deletion, ransomware, and data loss.
Domain and website. Hosting, domain renewal, and SSL certificates typically run $500 to $2,000 per year.
Category 3: Managed IT Services and Support
This is where your budget either becomes predictable or stays chaotic.
Managed services (MSP). A managed IT provider charges a fixed monthly fee per user that covers monitoring, patching, security management, help desk support, and strategic guidance. For context, Athencia One runs $45 to $55 per user per month for IT visibility and baseline security, while Athencia One Complete runs $159 to $199 per user per month for fully managed IT including advanced security, a password manager, and Microsoft 365 licensing. Most MSPs in the market charge between $100 and $250 per user per month for fully managed services.
Break-fix support (if you don't use an MSP). On-demand IT support typically runs $150 to $250 per hour, and the total is unpredictable. You pay more when things go wrong, which is exactly when you can least afford it. A single server outage that takes 8 hours to resolve can cost $1,200 to $2,000 in labor alone, not counting the productivity your team lost.
Project work. Migrations, new office setup, and major infrastructure upgrades are one-time costs that should be budgeted separately from your recurring monthly spend. Get scoping estimates for any projects you anticipate in the next 12 months.
Category 4: Security and Compliance
Security is not optional, and it has real, recurring costs.
Cyber insurance. Premiums range from $1,000 to $5,000 or more per year, depending on your coverage limits and industry. Many insurers now require specific security controls (MFA, endpoint protection, backup, security training) as conditions of coverage. Your IT budget should reflect the cost of meeting those requirements.
Security awareness training. Training your employees to recognize phishing and social engineering attacks costs $2 to $5 per user per month. Some providers, like Huntress, bundle security awareness training with their endpoint detection and response platform.
Compliance audits or assessments. If your industry requires compliance with HIPAA, PCI, or similar frameworks, budget $2,000 to $10,000 per year for formal assessments. Even if you're not in a regulated industry, a baseline security assessment against the CIS Controls framework identifies your biggest gaps and helps you prioritize spending.
Penetration testing or vulnerability scanning. Formal penetration testing for a small business typically costs $2,000 to $5,000 annually. This is often a cyber insurance requirement.
Category 5: Internet and Communications
Business internet. Budget $100 to $300 per month depending on speed and provider. If your team relies heavily on video conferencing and cloud applications, investing in faster, more reliable internet pays for itself in productivity.
Phone system (VoIP). A cloud phone system runs $20 to $40 per user per month. If you're on Microsoft 365, Teams Phone can replace a standalone phone system, consolidating one more cost into a platform you already pay for.
Backup internet connection. If your business can't function without internet, a secondary connection from a different provider ($50 to $150 per month) provides failover when your primary connection goes down.
Building the Budget: Practical Steps
Start by taking a complete inventory of your current IT spending. Pull credit card statements, invoices, and subscription records for the past 12 months. Sort everything into the categories above. Most business owners are surprised by how much they're actually spending once it's all in one place.
Next, list known upcoming costs for the next 12 months. Which computers are due for replacement? Which software renewals are coming up? Are there any planned projects like an office move or a system migration?
Add up your recurring monthly costs: MSP fees, software licenses, internet, phone, and security tools. Multiply by 12 to get your annual recurring baseline.
Finally, add a contingency fund. Set aside 10 to 15 percent of your total IT budget for unexpected needs. A failed switch, a sudden new hire, or a security incident that requires an unplanned investment will happen. The contingency fund keeps these events from blowing up your budget.
Review the budget quarterly, not just annually. Technology needs change, prices shift, and new tools come on the market. A quarterly review keeps your budget aligned with reality and gives you a chance to reallocate funds before they're spent.
Common Budgeting Mistakes
Not budgeting for hardware replacement. Computers don't last forever. If your budget doesn't account for a regular replacement cycle, you'll end up scrambling when machines start failing.
Ignoring security costs until forced. Many business owners don't think about security spending until a cyber insurance application or a compliance audit forces the conversation. By then, you're behind and spending reactively.
Not accounting for growth. Every new hire needs a computer, a Microsoft 365 license, access to your business applications, and onboarding time from your IT provider. If you're planning to hire 5 people this year, your IT budget needs to reflect that.
Cutting IT to save money short-term. Deferring hardware replacements, dropping security tools, or canceling your MSP to save money creates a debt that comes due with interest. Downtime, data loss, and security incidents are far more expensive than the monthly costs they prevent.
Not separating recurring costs from one-time projects. Your monthly IT spend and your project spend are different animals. Mixing them together makes it impossible to track whether your baseline costs are growing and whether your project investments are delivering value.
Need Help?
Building an IT budget from scratch takes time, but it pays for itself in predictability and smarter spending. If you want help assessing your current IT costs or building a budget that fits your business, reach out to Athencia. We'll walk through it with you.
