- 26 Sep 2011
Cost of IT as a percentage of turnover
A recent Martec International survey highlighted expectations regarding the cost of IT services as a percentage of a retailer’s overall sales. According to this study, the average retail IT budget now stands at 1% of sales. A retailer’s typical IT budget has often been quoted at around the 1.4%-1.8% of turnover mark, though I have seen this brought down to below 0.7% of turnover in some cases.
Getting the base correct is the difficult part – comparing Capex (capital expenditure) depreciation against items delivered as a service, Concessions versus Solus stores versus Web stores versus Franchises, the size of retailer and many other variables.
A key element forgotten when considering outsourcing is that the outsourcer carries items that are often not in the IT budget such as rent, rates, HR admin costs, insurance policies etc. If retailers have internal IT teams, they must ensure that they are running them with a business mentality.
Cost as a percentage of turnover is a useful yardstick to get a quick feeling for where you are on the cost base, though the key is to check whether IT is getting you increased sales, improved margins, better stock turns and reduced operating costs. In short, are retail IT teams delivering value for money and making a difference to the business?
What are your thoughts regarding the typical cost of IT services as a percentage of turnover? Are you a retailer who can apply these figures to your own business? Post your comments below or email firstname.lastname@example.org.