Building a Technology Budget: Lessons From 10 Years of Fractional CTO Work

If you run a business, technology spending is critical and confusing in equal measure. How much should you allocate? Where should you spend it? How do you prevent overspending on tools while not under-investing in essential infrastructure?

We've worked with hundreds of companies as a fractional CTO, and we've learned what works and what doesn't. This guide shares lessons from that experience to help you build a technology budget that supports growth without wasting money.

The Starting Point: How Much Should You Spend on Technology?

Most small businesses spend 3-5% of revenue on technology. For a $10M company, that's $300K-$500K annually. For a $2M company, that's $60K-$100K annually.

But "3-5%" is just a starting point. The actual amount depends on several factors:

Your business model:

  • Software/SaaS company: 8-15% of revenue (you're selling software, so heavy tech investment)
  • E-commerce: 5-10% (website, payment processing, inventory, logistics tech)
  • Services business: 2-5% (lower tech dependency, but still significant)
  • Manufacturing: 3-8% (equipment control systems, production planning)
  • Retail: 2-4% (POS, inventory, some online presence)

Your growth stage:

  • Startup: 10-20% of burn rate (heavy investment in infrastructure for growth)
  • Growth-stage (scaling): 5-10% of revenue (building scalable systems)
  • Mature: 2-4% of revenue (maintenance and optimization)

Your competitive position:

  • If technology is a competitive advantage (SaaS, e-commerce, fast-moving services), spend more
  • If technology is table stakes (basic infrastructure you must have), spend less on innovation, more on reliability

Start with these benchmarks, then adjust based on your situation. A SaaS company should spend more; a consulting business should spend less.

The Technology Budget Framework

Rather than random spending, structure your technology budget across five categories:

1. Essential Infrastructure (40-50% of tech budget)

This is what keeps the lights on:

  • Network and internet connectivity
  • Data storage (servers, backup, disaster recovery)
  • Core security (firewalls, monitoring, compliance)
  • Core business software (accounting, CRM if essential to business)

Examples:

  • Managed network service: $2,000-4,000/month
  • Cloud computing (AWS, Azure, Google Cloud): $1,500-3,000/month
  • Backup and disaster recovery: $500-1,500/month
  • Security tools (firewalls, monitoring, antivirus): $300-1,000/month
  • Internet connectivity: $300-2,000/month

This category should get 40-50% of your tech budget. It's not glamorous, but it's critical. You can't skip it.

2. Tools and Applications (25-35% of tech budget)

Software tools that your team uses to work:

  • Email and collaboration (Slack, Teams, Google Workspace)
  • Project management (Asana, Monday.com, Jira)
  • Accounting software (QuickBooks, Xero)
  • Sales tools (Salesforce, Pipedrive, HubSpot)
  • Customer support (Zendesk, Intercom, Help Scout)
  • Analytics (Mixpanel, Amplitude, Hotjar)
  • HR tools (BambooHR, Guidepoint, Greenhouse)

Examples:

  • Email/collaboration: $1,000-2,000/month
  • Project management: $500-1,500/month
  • Accounting: $300-800/month
  • Sales tools: $500-2,000/month
  • Analytics: $500-1,500/month

Budget $50-150 per employee per month for tools. If you have 20 employees, that's $12,000-36,000 annually.

The challenge: Each tool is "only $99/month," so teams buy subscriptions without tracking. Before you know it, you're paying for 30 tools with significant overlap. Audit quarterly.

3. Development and Custom Solutions (10-20% of tech budget)

Building custom software, integrations, and customizations:

  • Developers/engineers (salary or contract)
  • Custom integrations (connecting systems together)
  • Mobile app development
  • Website redesigns
  • Custom reports and dashboards

Examples:

  • Mid-level developer: $80K-120K salary + benefits
  • Contract developer: $100-200/hour
  • Integration project: $5K-20K
  • Mobile app: $20K-100K+

This category scales with your growth. Startups spend more (building product). Mature companies spend less (maintaining what exists).

4. People: Technical Talent (15-25% of tech budget)

Salaries and benefits for:

  • Full-time engineers/developers
  • IT staff
  • Fractional CTO/technical leadership
  • Contractors and freelancers

Examples:

  • Junior developer: $60K-80K
  • Mid-level developer: $90K-130K
  • Senior engineer: $120K-180K+
  • Fractional CTO: $5K-15K/month
  • IT contractor: $50-150/hour

Many small businesses skip this category or under-allocate. Technical talent is expensive, but a good technical leader saves money across all other categories through better decisions.

5. Training, Security, and Optimization (5-10% of tech budget)

  • Employee training (learning new tools, security awareness)
  • Security audits and penetration testing
  • Performance optimization (speeding up systems)
  • Compliance and certification
  • Technology research and evaluation

Examples:

  • Security audit: $2K-5K (annual)
  • Employee training: $200-500 per employee annually
  • Performance optimization project: $3K-10K
  • Compliance work: $1K-5K annually

Many businesses skip this category. Don't. Security training prevents breaches. Security audits catch vulnerabilities. Optimization makes systems faster and cheaper to run.

Common Technology Budget Mistakes

Mistake 1: Spreading Budget Across Too Many Tools

Every team member has "just the right tool" for their job:

  • Marketing wants HubSpot
  • Sales wants Salesforce
  • Operations wants Monday.com
  • Finance wants Netsuite
  • Each person requests one more SaaS subscription

Result: You have 40 tools with $2K-3K monthly spend, with significant overlap and unused features.

Fix: Conduct a quarterly "tool audit." List all subscriptions, usage, and cost. Kill anything unused. Consolidate overlapping tools. Negotiate volume discounts.

Mistake 2: Neglecting Essential Infrastructure

A business owner had $5K/month tech budget. It was spread across: Salesforce, HubSpot, Slack, Asana, five other tools, and "miscellaneous IT stuff."

Infrastructure got $400/month. It was underfunded. They experienced network outages, backup failures, and security issues.

Fix: Allocate 40-50% of tech budget to infrastructure first. Everything else comes second.

Mistake 3: Hiring Full-Time When Fractional Makes Sense

A 30-person company needed CTO-level decision-making 10-15 hours/week. Instead of hiring a full-time CTO ($160K+ cost), they could get fractional expertise for $8K/month ($96K/year).

They hired full-time instead, which was wasteful. For 30-60 person companies, fractional technical leadership often makes more sense than full-time hires.

Fix: Be honest about time requirements. If you need 40 hours/week, hire full-time. If you need 15 hours/week, fractional is smarter.

Mistake 4: Under-Budgeting Development

A company wanted to build a custom feature. They budgeted $10K. The actual cost was $25K. They went over budget and the project stalled.

Fix: Get estimates. Understand that custom development costs real money. Better to plan properly than to constantly have projects stall due to budget.

Mistake 5: Forgetting About Growth Costs

You budget $50K in technology for a 20-person company. The company grows to 40 people. You still have a $50K budget. Suddenly you're under-resourced.

Fix: Budget as a percentage of revenue (3-5%) or per-employee ($1,500-3,000/employee/year), so it scales with growth.

The Budget Template

Here's a simple budget template for a 20-person services company with $3M revenue:

Total Tech Budget: $100,000/year ($8,333/month)

Infrastructure (45%: $45,000/year) —

  • Internet and connectivity: $3,600/year
  • Managed network service: $30,000/year
  • Backup and disaster recovery: $9,000/year
  • Security tools: $2,400/year

Tools and Applications (30%: $30,000/year) —

  • Email/collaboration: $12,000/year
  • Project management: $7,200/year
  • Accounting: $4,800/year
  • Analytics: $3,600/year
  • Other tools: $2,400/year

Development (12%: $12,000/year) —

  • Custom integrations and improvements: $12,000/year

People (8%: $8,000/year) —

  • Part-time IT support: $8,000/year

Training and Optimization (5%: $5,000/year) —

  • Security training: $2,000/year
  • Performance optimization: $3,000/year

This budget could be adjusted based on specific needs, but it's a starting framework.

Managing Your Technology Budget

1. Track All Spending

Many companies don't know what they spend on technology. Subscriptions are scattered across multiple cards, contracts are hard to find, and spending grows silently.

Fix: Create a spreadsheet of all technology spending:

  • Software subscriptions (monthly, annual, per-user costs)
  • Hardware and infrastructure
  • Services (consulting, support, development)
  • Staff and contractors

Review it quarterly. Kill unused subscriptions. Renegotiate rates if possible.

2. Align Budget With Strategy

Your technology budget should support your business strategy. If your strategy is to:

  • Grow sales: Invest in sales tools and infrastructure
  • Enter new markets: Invest in market research tools and development
  • Improve customer experience: Invest in customer-facing tools and support systems

The budget shouldn't be random. It should be intentional.

3. Plan Capital Investments vs. Ongoing Costs

Some tech costs are one-time (buying a server, developing a custom system). Others are recurring (software subscriptions, monthly support).

Fix: Separate capital (one-time) from operational (recurring) budgets. For a $100K annual tech budget, maybe $30K is capital and $70K is operational.

4. Build In a Contingency

Unexpected things happen:

  • A tool you use gets too expensive or shuts down (need replacement)
  • A security issue requires emergency work
  • A system fails and needs emergency repair

Fix: Budget 10% contingency within your tech budget for unexpected costs.

5. Review and Iterate Quarterly

Every quarter:

  • Review actual spending vs. budget
  • Identify over and under-spending
  • Kill tools that aren't being used
  • Adjust for changes in the business
  • Plan next quarter based on priorities

Keys to a Healthy Technology Budget

After 10 years of working with hundreds of companies, here's what we know works:

  1. Infrastructure first — 40-50% of budget goes to essential infrastructure that keeps the business running
  2. Tools should be intentional — Every subscription should have an owner and measurable value
  3. People matter — Good technical talent makes all other spending more effective
  4. Track everything — You can't manage what you don't measure
  5. Align with strategy — Budget should support business goals, not random spending
  6. Plan for growth — As you scale, technology costs scale too
  7. Review regularly — Quarterly reviews catch waste and misalignment early
  8. Think about ROI — Every technology investment should return value

Conclusion

Technology budgets can feel overwhelming, but they're manageable with a clear framework. Start with the 5-category breakdown. Track your spending. Review quarterly. Kill waste. Invest in infrastructure first.

Most importantly, think of technology budget as an investment in your business, not just an expense. The right technology investments enable growth, reduce risk, and make your team more productive.

Need Help Building or Optimizing Your Technology Budget?

We work with businesses to audit technology spending, identify waste, and build budgets that support growth. Our fractional CTO services help you make smarter technology investments.

Schedule Your Free Consultation

Or contact us directly:

Let's make sure your technology budget is working for you.