How Much Should a Business Spend on IT? Benchmarks and How to Judge Yours

The short answer

There is no universal right amount to spend on IT; the right level depends on your industry, size, growth plans, regulatory obligations and how much your operating model relies on technology. Benchmarks are useful for prompting questions, but the better test is whether your spend is fully visible, tied to business outcomes and competitively priced. A business can spend below its peers and still waste money, or above them and be investing wisely.

Why is there no single benchmark?

Published IT spending benchmarks from research firms and industry bodies are usually expressed as a percentage of revenue or as spend per employee. They are genuinely helpful, but they vary widely by sector. A bank, an online retailer and a civil contractor have very different relationships with technology, so the same percentage would mean underinvestment for one and extravagance for another.

Other factors also distort comparisons:

• Business model. Digital-first businesses build technology into the product itself.
• Size. Smaller organisations lack economies of scale, so spend per employee often runs higher.
• Growth stage. A business modernising its core systems will temporarily spend more than one in steady state.
• Regulation. Organisations regulated by bodies such as APRA, or holding sensitive health or personal information, carry additional security and compliance costs.
• Accounting choices. Whether costs are capitalised, how cloud is classified, and whether business units buy their own technology all change the reported number.

Be cautious with any figure quoted without its source, industry, sample and date.

Which metrics should you actually use?

Rather than leaning on one ratio, look at several together:

Trends over time within your own business are often more revealing than comparisons with others. If spend per employee has risen steadily while service quality has not, that is worth investigating regardless of what peers spend.

Step 1: Find your true total IT spend

Most businesses underestimate their IT spend because some of it sits outside the IT budget. Build a full picture from the general ledger, accounts payable and corporate cards:

1. Internal IT staff, contractors and recruitment.
2. Managed services and outsourced support.
3. Software licences and SaaS subscriptions, including those bought by departments.
4. Cloud, hosting and data centre costs.
5. Hardware purchases, leases and depreciation.
6. Telecommunications, mobiles and internet.
7. Security tools and services.
8. Technology projects, including consultants and implementation partners.

The category that most often surprises executives is business-unit technology: marketing platforms, sales tools and industry applications paid for from departmental budgets.

Step 2: Map spend to what it delivers

For each material cost line, record the capability it supports, who owns it and how critical it is. This turns a list of invoices into a portfolio you can reason about. Patterns quickly emerge: three systems doing one job, a costly platform used by a handful of people, a critical system running on infrastructure that is barely funded.

Step 3: Test for waste

With spend mapped, look for the common forms of waste:

• Licences and subscriptions with low or no usage.
• Duplicate tools and overlapping contracts.
• Contracts that have auto-renewed without review.
• Cloud resources that are idle or oversized.
• Managed service charges for out-of-scope work that could be avoided.

Our guide on how to reduce IT costs covers the levers in detail.

Step 4: Test for underinvestment

The opposite risk is just as real. Underinvestment rarely shows up in the budget; it shows up as consequences. Signs include unsupported operating systems, gaps against the Australian Cyber Security Centre's Essential Eight, recurring outages, staff relying on spreadsheets to bridge disconnected systems, and a backlog of improvements that never gets addressed. These carry costs too, often larger ones, when an incident or failed audit forces urgent spending.

Step 5: Decide on the right level for your strategy

Once you know what you spend, where waste sits and where risk is building, you can set a deliberate level. A sensible IT budget:

• Funds the core platforms and security controls the business cannot operate without.
• Removes waste and reinvests part of it in priorities.
• Allocates change spend to a short list of initiatives with clear business cases.
• Reports in business terms, so the board can see what it is buying.

Our IT budget planning guide walks through building the budget itself, and zero-based IT budgeting is a useful method if the current baseline cannot be trusted.

A practical way to frame it for the board

Instead of asking whether IT spend is too high, present three questions: Are we paying for anything we do not use? Are we exposed anywhere because we are spending too little? Is the change budget going to the initiatives that matter most? Boards find this framing far more useful than a single ratio, and it leads directly to decisions.

How The Technology Office assesses IT spend

The Technology Office gives executives an independent, evidence-based view of what their technology really costs and whether it is the right amount. We build the full spend picture, including technology hidden in business-unit budgets, map it to capabilities and outcomes, and identify both waste and underinvestment. Because we are vendor-neutral and earn nothing from the products we recommend, our view is shaped only by your interests.

We work with businesses of every size and industry across Australia, at CIO level, and we protect security and critical systems in every recommendation. Our IT cost optimisation and IT department audit services are the usual starting points.