Benchmarking IT Expenses
Marc Rosenberg, CPA
Question from a Blog Reader: Hi Marc. Can you help me find some industry data on IT expenses? Specifically, I’d like some benchmarking statistics on CPA firm IT costs, including IT expenses as a percentage of revenue.
I’ve got three suggestions for you:
#1 – Per workstation cost. My colleague Roman Kepczyk, who is the #1 CPA firm IT expert nationwide, shared this with me: “We utilize a per person cost of $6,500 to $8,500 per workstation per year. Firms that move applications to the cloud-hosted model are finding they offset some of the transition cost by reducing internal IT staff hours and in some cases entire positions, which is significantly altering previous technology cost assumptions.
#2 – IT expenses per person. The Rosenberg Survey shows this metric as $5,700-$5,800 per person. The interesting nuance is that it does not vary based on size of firm.
#3 – IT expenses as a % of revenue. This is the most common benchmark we see for this metric, though as we discuss in the next paragraph, it’s the least valid of the three. The Rosenberg Survey shows IT costs as 3.3% of revenue for firms over $20M. For firms under $20M, this statistic rises to 3.5-3.6% of revenues.
Why is this metric less valid than the other two? It’s all in the math. “Larger” firms (for this discussion, let’s consider “larger” as over $20M in revenue) tend to be substantially more profitable and efficient than smaller firms. As a result, whenever one measures any expense, not just IT costs, these expense items as a percentage of revenue will tend to be lower than these ratios for smaller firms. The expenses are essentially spread out over a higher revenue number.
The just-released 2015 edition of Roman Kepczyk’s celebrated Quantum of Paperless is a must-read for anyone in CPA firms who has a special interest in ensuring that the firm optimizes its use of technology to improve service quality and increase efficiency and profitability.
6 Comments
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Key question, what all are you including in the “IT costs”, e.g. does this include IT personnel, VOIP, etc?
Thanks for the statistics. What are you including in IT costs?
Do these numbers include IT staff salaries? (in the budgets). What about accounting software costs (yearly renewals for products like CCH’s engagement, tax, etc.)
Marc,
There is a significant difference between the cost per person/workstation and the cost per person (#1 and #2). How do you differentiate between the two when most people have a complete IT setup?
same question .. what is included… salaries computers software for sure … what about internet connections … what about copiers and cell phones … tablets …phones… certainly if they are voip
Thanks to all of you for the substantive comments and questions in response to this week’s blog re: IT expenses. I’m going to do some additional research with my colleague Roman Kepczyk and will share that with everyone shortly.
For now, here is some additional information.
Most MAP surveys, including The Rosenberg Survey, instruct people to include hardware, software, compensation of full time IT personnel, outside consultants, computer training, supplies and other computer related items in the category “IT expenses.” What they actually do is a totally different issue that we won’t address here.
As the world has morphed from the term “computer expenses” to “IT expenses”, differentiating among IT expenses, office equipment and utilities is no longer straightforward. My sense is that VOIP, cell phones and telephones would be considered utilities/telephone expense: tablets, depreciation on computer equipment and internet connections would be IT expenses.
The biggest complication is categorizing IT labor. At larger firms, say, over $15M, most IT labor consists of non-partners who spend 100% of their time in IT. So, it’s pretty easy to classify these people as IT expenses. At firms under $15M, firm personnel who are NOT full time IT people, such as partners with IT oversight duties and COOs/firm administrators, often devote a sizeable portion (though well under half) of their time on IT matters. The vast majority of CPA firms are well under $5M, so it’s unlikely that these firms have even one full time IT person. If a firm wishes to sort the time and expense of these people between IT and other areas, then the IT portion certainly should be included with other IT expenses.
Another complication is how firms pay for IT expenses: Major purchases which create depreciation expense everything in the year purchased; rent vs. buy, subscriptions, certain items bundled with others, etc., all impact how IT costs are measured on an annual basis.
Finally, why do IT costs average $7,500 per workstation and $5,800 per FTE/person? The biggest factor is the extent to which admin personnel have dedicated workstations. At small firms, more admin personnel have their own workstation. But as firms get larger, it’s more common for admin to share workstations and even for some not to use them at all. When the average number of workstations for admin personnel goes down, a gap arises between the two IT benchmarking metrics.