How to Build an IT Budget That Works

By | August 27, 2025

How Do You Create a Budget for an IT Department?

If you run a small to midsize business in Phoenix, you’ve likely had this moment: your IT guy is overwhelmed, your systems are limping along, and a compliance deadline or cyber insurance renewal is suddenly staring you down. Everyone’s talking about “tech stacks,” “cyber hygiene,” and “cloud-first strategy”… but all you really want is to know: How much should we be spending on IT, and what exactly are we paying for?

At thirtyone3 technology, we hear this question constantly. It’s not just about allocating dollars, it’s about deciding how your business will operate, scale, and stay secure. And that’s a high-stakes conversation.

Let’s be honest, IT budgets for small businesses often start out as afterthoughts. They’re reactive. They grow organically around fire drills, patch jobs, and whatever your last support vendor recommended. But in 2025, that approach is both risky and expensive. The pace of tech change is relentless. Phoenix SMBs, especially those in professional services, healthcare, finance, and manufacturing, face increasing pressure to deliver digital services reliably, securely, and without breaking the bank.

So, how do you build an IT budget that makes sense for your size, industry, and goals?

It starts by asking the right questions. Not just “How much will it cost?” but:

Are we investing in IT that enables growth or just plugging holes?

Do we have the right delivery model; internal staff, external help, or both?

Where are we overspending (or underpreparing) without realizing it?

What systems and safeguards are truly business-critical?

We’ll walk you through how to think strategically about your IT budget; from choosing your operating model (in-house, fractional, or MSP) to identifying the core categories every smart IT budget should cover (hardware, security, labor, backups, and more). We’ll also show you where most SMBs overspend, the areas they typically underfund, and how to align IT costs with your company’s growth trajectory.

Whether you’re managing a 15-person design consultancy in Scottsdale or a 100-employee precision machining firm in Mesa, you deserve more than a “wing-it” IT plan. You need a clear, forward-looking budget that fits your size today, and scales with your vision tomorrow.

And you don’t have to guess. With a clear framework and the right technology partner, your IT budget can go from a source of confusion to a source of control.

Choosing Your IT Operating Model: In-House, Fractional IT, or MSP?

Once you’ve acknowledged the need for an IT budget, the next major decision is how you’ll deliver and manage your IT. It’s a foundational business choice that affects your cost structure, staffing, security posture, and operational agility.

For SMBs in the Phoenix metro area, especially those operating with 10 to 150 staff, there are three primary IT operating models to consider:

1. In-House IT: Full Control, Full Cost

Hiring full-time IT staff gives you direct control over technology, faster in-person support, and immediate access to someone who understands your internal systems. But with that control comes a significant cost burden.

Salaries, benefits, ongoing training, and toolsets add up quickly. And unless you have multiple specialists, it’s difficult to cover all the roles you need – from cybersecurity to compliance, from infrastructure to end-user support. One person may know how to reboot a server, but can they also handle HIPAA audits, firewall rules, and long-term tech planning?

For Phoenix-based firms in regulated industries like finance or healthcare, this model only works when you’re large enough to build a deep bench. Otherwise, it often leads to burnout, bottlenecks, and blind spots.

Best for: Organizations with complex, industry-specific infrastructure or heavy in-person support needs.

Risk factors: High overhead, skills limitations, difficult to scale.

2. Fractional IT Leadership: Strategic Depth Without the Overhead

Many SMBs don’t need a full-time CIO, but they do need someone who can think like one. That’s where fractional IT leadership comes in. This model gives you access to a senior-level technology strategist who works part-time with your business, providing executive-level guidance without executive-level payroll.

A fractional IT leader helps you:

Build a technology roadmap

Set smart budgeting priorities

Evaluate vendors and contracts

Navigate regulatory risks

This model is especially effective during growth stages, system migrations, or digital transformation efforts. You get top-tier advice without the long-term hiring commitment.

This model is one that thirtyone3 technology frequently supports for SMBs in Phoenix who are ready to scale but aren’t sure how to invest wisely in IT. It provides a low-risk entry point into strategic planning and often leads to long-term clarity and cost savings.

Want to explore how fractional IT can unlock growth? Read our article: What is IT Strategy Consulting and How Will It Drive Business Growth in 2025?

Best for: Businesses in transition or growth mode who need strategic direction without hiring a full-time IT executive.

Risk factors: Requires internal buy-in; best paired with operational support (like an MSP or IT contractor).

3. Managed Service Provider (MSP): End-to-End Support with Predictable Costs

A Managed Service Provider (MSP) acts as your outsourced IT department. For a fixed monthly fee, you gain access to a full team of professionals covering:

Helpdesk support

Network monitoring

Cybersecurity

Software updates

Backup and disaster recovery

For most Phoenix SMBs, especially in professional services, manufacturing, and healthcare, this model offers the right mix of affordability, scalability, and peace of mind. You pay a predictable monthly rate and offload risk to a provider whose entire job is to keep your tech running smoothly.

Best for: Companies that want comprehensive, outsourced IT operations without managing internal tech staff.

Risk factors: Overpaying for unused services, vendor lock-in, or choosing a partner that lacks strategic input.

How to Choose What’s Right for You

Here’s a simple framework to help evaluate your best fit:

Criteria	In-House	Fractional	MSP
Headcount	100+	25–100	10–150
Budget Flexibility	Low	Medium	High
Regulatory Complexity	High	Medium	High
Internal IT Staff	Required	Partial	Not needed
Strategic Oversight	Yes	Yes	Varies by provider

For many SMBs, a hybrid approach works best. You might engage a fractional IT leader to handle strategy and budgeting while using an MSP for day-to-day operations. Or, as your internal capabilities grow, you can transition more in-house over time.

The key is understanding that your IT delivery model is the foundation of your entire tech strategy. And choosing the wrong one leads to missed opportunities, overspending, or exposure to avoidable risks.

Core Components of a Smart SMB IT Budget

Once you’ve selected the right IT delivery model (whether in-house, fractional, MSP, or a hybrid) the next step is building a clear, line-by-line budget that reflects your business’s size, priorities, and risk tolerance. This isn’t just about cost control; it’s about creating transparency, avoiding surprises, and ensuring every dollar supports productivity, security, or growth.

Let’s break down the foundational components every Phoenix SMB should consider in their IT budget.

Hardware: Plan for Replacement, Not Reaction

Every piece of physical infrastructure (desktops, laptops, servers, network switches, firewalls, etc.) has a life cycle. Yet too many businesses operate on the “if it ain’t broke, don’t fix it” principle, which leads to emergency purchases and productivity slowdowns.

Best practice: Budget for a 3–5-year replacement cycle.

Laptops/Desktops: $800–$1,500 per seat

Network gear (switches, access points): $500–$2,000

Firewalls and edge devices: $1,000–$3,000 depending on security needs

Factor in installation labor, extended warranties, and spares for rapid swap-outs. For distributed teams, budget for secure, pre-configured setups shipped directly to users.

Software & Licensing: Know What You’re Paying For

Licensing bloat is a silent killer of SMB IT budgets. Many Phoenix-area firms overspend by paying for unused SaaS seats, redundant subscriptions, or outdated desktop licenses. And with so many platforms moving to subscription models, it’s easy to lose visibility.

What to include:

Productivity: Microsoft 365, Google Workspace

Line-of-business tools: EHRs, CRMs, CAD software

Collaboration: Zoom, Slack, Teams

Licensing management tools: to track usage and reduce waste

Pro tip: Review your licensing quarterly. Consolidate vendors where possible and always check for nonprofit/SMB pricing tiers.

Security: Non-Negotiable, Even for Small Teams

If it connects to the internet, it can be breached. Even if your team is just 10 people, you still need layers of protection.

Baseline security expenses include:

Antivirus/endpoint protection

Multi-factor authentication (MFA)

Email filtering

Managed firewall

Security awareness training

Add to that any compliance-related tools for industries like healthcare (HIPAA), finance (PCI), or legal (client confidentiality). The average SMB breach costs $120,000+, far more than a proactive security investment.

Labor & Support: Budget for Human Expertise

Whether it’s an in-house IT manager, a part-time tech, or a full-service MSP, labor is one of the largest ongoing expenses and the one most likely to fluctuate with your chosen delivery model.

Typical monthly costs:

In-house IT: $75,000–$120,000/year per hire

Fractional IT director: $2,500–$5,000/month

MSP support: $125–$250 per user/month

Include after-hours support rates, onboarding time for new employees, and any costs related to SLAs or emergency response times.

Backups & Disaster Recovery: Your Last Line of Defense

If your data disappeared tomorrow, how quickly would you recover? For many SMBs, backups are set-and-forget until they’re needed. At that point, poor planning becomes a business-stopping event.

What to plan for:

Daily backups of core systems

Offsite/cloud redundancy

RTO (Recovery Time Objective): how quickly you can be back online

RPO (Recovery Point Objective): how much data loss is acceptable

Cloud backup solutions like Veeam, Acronis, or Datto can be priced per server or per GB. Make sure your budget includes both technology and regular testing.

Tiered Budget Example by Headcount

Line Item	10 Users	50 Users	100 Users
Hardware Refresh	$8,000	$40,000	$80,000
Software/Licensing	$6,000	$30,000	$60,000
Security Stack	$3,000	$10,000	$20,000
Labor/MSP Support	$12,000	$72,000	$144,000
Backup & DR	$2,500	$8,000	$15,000
Total (Est.)	$31,500	$160,000	$319,000

These aren’t hard rules, but they give you a sense of how quickly costs scale. And more importantly, how budgeting proactively avoids emergencies that burn time and money. For SMB leaders looking to create a structured, forward-looking plan, this breakdown of IT budgeting best practices provides a helpful foundation for aligning technology spending with business priorities.

Where Most SMBs Overspend or Underprepare

Even when small and midsize businesses in Phoenix do set aside budget for IT, it’s often misallocated. We regularly see firms spending thousands on tools they don’t fully use while leaving gaping holes in basic protection or business continuity. In today’s threat landscape and compliance-heavy environment, that imbalance is risky.

Here’s where most SMBs fall short and how to avoid making the same mistakes.

Overspending: Paying for What You Don’t Need (or Can’t Use)

Underpreparing: The Dangerous Gaps That Go Unnoticed

1. No Backups or Untested Backups:
Thinking your data is backed up isn’t the same as knowing it can be restored. Many SMBs set up backups once and never verify that they’re running or recoverable. That’s a recipe for disaster.

2. Minimal Security Layers:
Basic antivirus isn’t enough. Without multi-factor authentication, email filtering, and endpoint protection, even a single phishing email could bring your operations down. Compliance-heavy industries like healthcare and finance can’t afford that exposure.

3. Untrained Staff:
Your employees are your biggest attack surface. Without basic cybersecurity awareness training, even the best security stack is vulnerable to a simple click on a malicious link.

Industry-Specific Blind Spots

Different industries in Phoenix face different IT challenges, many of which go underfunded.

Healthcare Practices: Often overlook full HIPAA-readiness thinking an antivirus solution or EHR login screen is enough.

Finance & Insurance Firms: May lack real-time audit trails, encrypted file sharing, or vulnerability scanning, leaving them exposed during compliance checks.

Manufacturing & Industrial Shops: Frequently skip over OT/IT network segmentation, putting production equipment at risk from attacks that originate through the office Wi-Fi.

According to the latest IT Industry Outlook by CompTIA, SMBs are rapidly adopting new technologies but not always with the governance and support needed to make them secure and cost-effective. This mismatch between investment and strategy leads to overspending in some areas while leaving mission-critical functions dangerously exposed.

How to Spot the Gaps in Your Own IT Budget

Review every recurring software subscription. Eliminate overlaps or downgrade unused licenses.

Evaluate your current MSP agreement. Are you using all the services you’re paying for?

Audit your security posture. Do you have documented recovery times, password policies, and MFA?

Ask your team about tech pain points. Frequent slowness, outages, or support delays may reveal hidden costs.

And remember, cost-effective doesn’t mean cutting corners; it means spending wisely. Businesses that chase low-cost IT services without understanding the trade-offs often end up paying more in the long run through downtime, data loss, and productivity hits. That’s why smart budgeting isn’t just about reducing spend, it’s about avoiding the hidden costs that come with poorly aligned IT support.

How to Right-Size Your IT Budget with Business Growth in Mind

IT budgeting is often treated as an annual exercise; numbers are plugged in, approvals are given, and the document disappears into a folder until next year. But in reality, your IT needs evolve constantly. New hires, compliance changes, software upgrades, cyber threats – each can impact your technology footprint and, if unaccounted for, blow up your budget mid-year.

That’s why the smartest SMBs in Phoenix don’t just budget, they right-size. They treat the IT budget as a strategic tool, aligning spending with growth plans, operational goals, and risk tolerance.

Think in Phases, Not Just Years

A 12-month budget might cover known costs, but what about planned growth? Or a system overhaul? Or the fact that your 50-person team could become 75 by Q4?

Instead of building your budget around what you have, build it around where you’re going. Create phased tiers or scenario-based allocations, such as base, moderate, and aggressive growth models.

This lets you plan proactively for:

Hiring ramps and onboarding tech

Office expansions or cloud migrations

Compliance-related updates (e.g., HIPAA, PCI-DSS)

It also helps you avoid “big bang” surprises by funding IT projects in manageable waves.

Map Technology to Business Goals

Every dollar in your IT budget should trace back to a business objective:

Productivity (faster systems, better tools)

Risk reduction (security investments, backup reliability)

Innovation (new platforms, customer-facing improvements)

If you can’t connect the line item to a business outcome, question whether it belongs in the budget.

This kind of thinking is central to modern financial planning. In fact, this approach is supported by Workday’s framework for developing a “just right” budget plan, balancing flexibility and structure to support long-term agility.

Leave Room for Optimization and Opportunity

Good IT budgeting isn’t just about cost control. It’s about agility; creating space for experimentation, optimization, and scaling when the moment is right.

That includes:

Funding periodic tech reviews or audits

Budgeting for employee training (to reduce helpdesk calls)

Leaving margin for innovation (like AI tools or workflow automation)

And don’t forget about usage metrics. Are your tools being used efficiently? Is your support model overbuilt? Are you locked into vendor contracts that don’t scale well?

Make time each quarter to revisit the budget. Not just the numbers, but the assumptions behind them.

Your Next Step: Clarity and Control with thirtyone3 technology

Creating a well-structured IT budget is more than just allocating funds. It’s about enabling growth, reducing risk, and staying agile in an unpredictable market. For Phoenix SMBs operating in high-demand sectors like healthcare, professional services, finance, and manufacturing, the stakes are high. A clear, forward-looking IT budget is your defense against downtime, your insurance policy for compliance, and your roadmap for operational excellence.

Whether you’re deciding between an in-house hire or a managed provider, struggling with support costs, or trying to align your tech with next year’s goals, the solution starts with clarity.

That’s where thirtyone3 technology can help.

We work with small and midsize businesses throughout the Phoenix metro area to:

Build IT budgets that scale with your team and strategy

Right-size support models to reduce waste and increase uptime

Guide leadership through infrastructure decisions, compliance planning, and cost optimization

You don’t need to guess what’s right for your business, you need a partner who understands your industry, your challenges, and your potential.

Let’s Build a Budget That Works for You

If you’re ready to take control of your IT costs and move from reactive fixes to proactive planning, we’re ready to help. Start with a conversation or download our free checklist to evaluate your current IT spending and identify gaps.

Further Learning:

Thirtyone3 Technology – The Hidden Costs of Cheap IT Support

Breaks down how low-cost IT solutions often lead to higher long-term expenses due to downtime, poor service, and unresolved risks.

thirtyone3 technology – What is IT Strategy Consulting?

Explains how fractional or strategic IT leadership can guide smart technology investment decisions during growth and transition.

CompTIA – IT Industry Outlook 2024

Offers data-driven insights into SMB technology adoption, spending trends, and the challenges of managing IT in a changing market.

Workday – Budget Planning for Your Business

Explores best practices for creating a flexible, scalable business budget that supports long-term agility and risk management.

N-able – Effective IT Budgeting Strategies and Best Practices

Outlines tactical and strategic approaches to IT budgeting for businesses seeking more predictable, ROI-driven results.