spending percentage revenue industry per company summary

techsuch May 9, 2021 0 Comments

IT Spending as a Percentage of Revenue by Industry, Company Size, and RegionIT spending as a percentage of revenue is a key metric that most organizationsuse to calculate their IT spending levels. The formula is simple: It is thecompany’s IT operational spending (including depreciation) divided by thefirm’s total revenue. The calculator can also be set up on a cash basis byusing total IT spending, including capital spending, and omittingdepreciation. Although the calculation is straightforward, it is essential tounderstand how this metric varies by industry, company size, and region.This Research Byte analyzes IT spending as a percentage by industry, IT costsas a percentage of revenue by company size, and IT budgets as a percentage ofrevenue by region. We discuss why it is better to evaluate percentiles ratherthan average IT spending. Finally, we outline other key metrics for IT budgetanalysis, such as IT spending per employee, IT spending per user, and ITspending per desktop.This Research Byte is based on our annual IT spending and staffing benchmarksstudy, which is based on a statistical data set with over 25 industry sectors.The Executive Summary (60+ pages) of the full report is free. There is also acompanion executive summary for Europe. Download the Executive SummaryDownload the European Summary### IT Spending as a Percentage of Revenue by IndustryIT spending as a percentage of revenue is the most popular formula to use incalculating overall IT spending. One reason for this is that financialexecutives are accustomed to looking at many business functions in terms of apercentage of revenue. For example, they look at sales expense, marketingexpense, and accounting costs all calculated as a percentage of revenue.Computing this metric for information technology is a logical extension. In considering IT spending as a percentage of revenue, the first importantprinciple is that this metric varies greatly by industry. As shown in Figure1, IT spending as a percentage of revenue in the financial services industryranges between 4.4% at the 25th percentile to 11.4% at the 75th percentile. Incontrast, discrete manufacturing companies spend 1.4% and 3.2% at the 25th and75th quartiles, respectively. To put this in sharper relief, a financialservices organization at the 25th percentile spends more than a discretemanufacturer at the 75th percentile. There is no factor more important in the formula for IT spending as apercentage of revenue than industry sector—not company size, not geographiclocation. Notice, also, in Figure 1, we are tracking IT spending metrics againstindustry percentiles, not against industry averages. Average IT spending tendsto be much greater than the median. In fact, we often see average IT spendingas a percentage of revenue that is actually equal to or higher than the 75thpercentile! This is because IT spending is not a normal distribution butrather is skewed toward higher quartiles. This makes sense when you considerthat no organization can have IT spending that is less than zero—but there isno limit to how much you can spend. For this reason, we publish all of our ITspending ratios at the median, 25th percentile, and 75th percentile. Thisencompasses the middle 50% of the sample, thus excluding outliers on eitherside.Our benchmarks report provides benchmarks for over 25 industry sectors,including manufacturing, banking and finance, insurance, retail, wholesaledistribution, energy and utilities, healthcare, professional services,transportation and logistics, construction and trade services, IT services,government, nonprofit and charitable organizations, higher education,commercial real estate, high-tech, food and beverage, industrial andautomotive, commercial banking, online retail and e-commerce, hospitals, cityand county government, government agencies, and logistics.### IT Spending as a Percentage of Revenue by Company SizeOur research shows that IT spending as a percentage of revenue does vary byorganization size, with larger companies within an industry tending to spendmore on IT as a percentage of revenue than smaller companies. However, theeffect of organization size is far less than the deviation by industry sector.For example, a small bank will spend much more on IT as a percentage ofrevenue than a large construction company. In fact, the small bank mighteasily spend over 10% of its revenue on IT, whereas a large construction firmwould be unusual if it spent more than 2%. Therefore, when benchmarking IT spending as a percentage of revenue, lookprimarily at your industry sector. Then look to see whether your organizationsize is much greater or less than the demographics of the survey sample. Youmay be able use this in your analysis to justify a greater or lesser level ofIT expenses.### IT Spending as a Percentage of Revenue by RegionWithin the U.S. and Canada, our research does not show any difference in ITspending as a percentage of revenue between geographic regions. For example, amidsize manufacturing company in California the West Coast of the UnitedStates should not be spending differently than a similarly sized manufacturerin Texas, New York, Florida, or Montreal, Canada. We do not recommend,therefore, that IT organizations attempt to segment a sample by geography. Todo so only yields a smaller sample, and the confidence level will be less. Neither do we see significant differences between North America and Europeancountries or other developed countries. However, we do not yet have a largeenough sample to draw conclusions about IT spending in developing countries,such as parts of Asia, South America, or Africa.### IT Spending per Employee, Per User, and Per Desktop PCOne mistake that IT leaders make in benchmarking their IT spending levels isonly to look at their IT budgets as a percentage of revenue. To get a morecomplete picture, it is advisable to use other ratios as well, as shown inFigure 1. For example, look at IT spending per employee—or better yet, ITspending per user. The latter is more significant, because IT organizationsmust support users whether or not they are employees. Healthcare companies,for example, tend to have many more users than employees. On the other hand,in some companies, especially in manufacturing, not all employees are users ofIT. Another good benchmark is IT spending per desktop (or, per PC/laptop). Thiscan provide another perspective in cases where users have more than onedesktop/laptop, users share PCs (e.g. across multiple shifts, for example, ina hospital), or where there are a significant number of desktop computers inlaboratories, classrooms, or other shared environments.### Sources for IT Spending Ratios and IT Budget MetricsComputer Economics offers a wide range of IT spending, staffing, and budgetratios by industry sector and organization size. These are available in ourannual IT Spending and Staffing Benchmarks study. Individual chapters areavailable for over 25 industry sectors and sub-sectors, and for small,midsize, and large organizations. We also have a companion European ITSpending and Staffing Benchmarks study. Download the Executive SummaryDownload the European SummaryFor those considering purchase of more than one chapter, becoming a ComputerEconomics client may be a more cost-effective option, as it gives youdiscounted access to all chapters, as well as access to all our publicationson IT spending metrics, IT staffing ratios, IT outsourcing statistics,technology trends, IT best practices, and other advisory reports. In addition,it comes bundled with analyst support at no charge. For those who are looking for more hands-on assistance, we offer custom ITbenchmarking services, which can be bundled with a website subscription foreven greater discounts.

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