How To Calculate Cost Of IT For Small Business
This blog post was updated on October 8, 2024
It was originally published on May 1, 2019
The Cost of IT Issues in 2024
According to research from Nexthink, employees report that their IT issues, on average, last 28 minutes. Further, IT respondents reported that the average frequency of technology issues, per employee was 2 IT issues per week. However, only 55% of tech issues are reported to IT. This means that the actual frequency of IT issues is at least twice, i.e. 4 issues per week.
Therefore, the time spent on IT issues per employee per year
= 28 minutes/issue * 4 issues/week * 50 weeks
= 5,600 minutes
= 93.33 hours
According to the Occupational Wage data shared by the Employment Development Department State of California, the mean hourly wage in California was $38.15 for the first quarter of 2024.
This implies that:
The cost of lost time = 93.33 hours * $38.15/hour = $3,560.5
Opportunity cost = 93.33 hours/year x $38.15/hour x 1.5 = $5,340.8
Total cost of IT issues = ($3,560.5 + $5,340.8) = $8,901.3 per employee per year
The Cost of IT Issues In 2019
The cost of IT or poor IT is $6,876 per employee per year. So for a small company of say 10, this cost will be $68,760 per year. In the following sections, we share the detailed calculations. Follow along to understand the calculating steps and customize the variables to suit your business.
What is the role of technology in your business?
It’s often challenging for us to fully grasp the significance of technology in our daily business operations. This challenge doesn’t arise from the complexity of the technologies themselves, but from how ingrained they have become in everything we do. From point-of-sale systems to smartphones, from network-attached storage devices to cloud infrastructure, technology is now a fundamental necessity for modern businesses.
These technological solutions drive productivity, efficiency, and effectiveness in business operations and communication at a scale that would otherwise be unimaginable.
As the saying goes: “Technology is no longer just a part of business—it is the heart of the business.”
If you think this sounds exaggerated, try turning off your computer and mobile devices for just an hour, and see how much work you can actually get done.
What is the cost of IT for your company?
Whenever this question comes up, the answer is often “it depends.” But that doesn’t give us much to work with. As business owners—whether large or small—we need to assign a dollar value to all our costs. Without accurately accounting for the cost of IT, our financial plans will have a significant gap. And as the saying goes, “failing to plan is planning to fail.” So, let’s dig deeper and see if we can come up with a more concrete answer than just “it depends.”
The cost of IT can generally be divided into three broad categories:
Hardware – everything from laptops and smartphones to networks and servers.
Software and services – including applications, SaaS solutions, and cloud infrastructure.
Personnel – salaries, hiring, and training.
And then there’s a hidden fourth cost: interruptions.
The first two categories—hardware and software—can be planned for with relative ease. You can set in stone the devices you’ll purchase and the apps and software you’ll use. Similarly, personnel costs can also be estimated—you can either hire in-house or outsource your IT needs.
The tricky part is calculating the cost of interruptions. How do we tackle that?
Interruption has two parts- lost time and opportunity cost. Lost time is the time your employees spend trying to solve their IT problems or in helping a colleague with their IT issues. According to a survey by Robert Half Technology, U.S. office workers on average waste 22 minutes each day dealing with IT-related issues. This translates to more than 91 hours per year spent dealing with IT issues by each employee.
Here is the math:
22 minutes/day x 5 days/week x 50 weeks/year = 5,500 minutes or 91.67 hours/year
If our average hourly rate per employee is $30 per hour, then
Cost of lost time = 91.67 hours/year x $30/hour = $2,750/year per employee
If we have 10 employees, just the lost time can cost us $27,500 every year. OK, now we are getting somewhere. We have a dollar value that we can associate with interruptions.
What about the opportunity cost?
In simple terms, opportunity cost is the value of what you give up when you choose one option over another. For example, if your software engineer is spending time troubleshooting a network printer instead of writing code, they’re sacrificing their time on a task that adds less value to your company. Writing code clearly holds more value than fixing a printer. The more valuable an employee’s work, the higher the opportunity cost when they’re diverted to lower-value tasks.
So, if you're a founder or co-founder and you find yourself taking your laptop to the Genius Bar or spending hours sourcing Wi-Fi equipment, you're essentially wasting money. The tricky part is that this is an implicit cost—you won’t see a direct cash outflow in your financials. That’s why it’s hard to recognize and often goes unnoticed.
When we hire someone, we expect to make some money from the work that they perform. Of course, there are exceptions. Certain jobs such as administration and HR don’t bring in revenue but enable others to do so. So companies generally expect the employees to make for the company 2 - 3 times their salary. A large part of this will go towards operational costs and overheads so the net profit would be around 50-100%.
Using a conservative profit of 50%, let’s do some math again:
Opportunity cost = 91.67 hours/year x $30/hour x 1.5 = $4,125/year per employee
So for 10 employees that will amount to $41,250/year in opportunity cost.
Therefore, the cost of IT or rather of poor IT operation and management is $2,750+$4,125= $6,876 per employee per year.
For a small 10 people company, this will be $68,760 per year.
There we have it, something much better than “it depends”. Now, this is a figure we can definitely work with. We have made a few assumptions, which can vary from case to case but once calculated, it shouldn’t vary too much.
Cost of downtime for the company
The interruptions mentioned earlier should not be confused with company-wide downtime caused by major events like network outages or ransomware attacks. Such downtime has a much more severe impact on your business, particularly if there’s no business continuity plan or data backup in place. Prolonged or frequent downtime doesn’t just hurt your revenue—it also damages your reputation and erodes customer trust.
The effects of downtime are often far greater than we anticipate. After an interruption, it takes time to refocus and regain the momentum you had before the disruption. On top of that, there’s the added stress and fatigue from dealing with the downtime, as well as the pressure of knowing you’re now behind on your work.
Now, imagine this kind of disaster striking during your busiest season. It’s not just concerning—it’s downright alarming!
How to reduce the cost of IT?
The cost of unmanaged IT and downtime can be surprisingly high, but the good news is that it can be reduced quite easily. By addressing lost time, you’ll also reduce opportunity costs.
Well-managed IT operations will:
Make your IT systems less prone to downtime.
Ensure your business is better prepared to handle emergencies.
Enable your operations to resume quickly after disruptions.
As companies grow, they must shift from merely reacting to IT issues to adopting a proactive approach. With growth comes increasing IT complexity—and with it, the rising costs of unmanaged IT and downtime. Proper IT management acts as insurance, allowing you to work with less stress. While it won’t eliminate IT issues entirely, the right IT support will reduce the number of incidents and minimize their impact. Additionally, having a skilled IT team on hand significantly eases the stress and fatigue caused by downtime.
Should you hire a managed IT Service provider?
Given the costs, you might consider either building an internal IT team or outsourcing your IT management. For small business owners, outsourcing IT can be a big step. However, considering how integral IT is to your business strategy, it’s crucial to stop viewing IT as a liability.
“Remember, all the technology in the world is not worth anything if it does not boost your productivity and help you achieve your business goals.”
Instead of getting overwhelmed by the IT challenges your growing company will inevitably face, a solid plan will help you determine when to bring in external help. Whether you choose to keep IT in-house or hire a managed service provider, make the decision based on both your bottom line and how IT affects your core business.
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