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How much does the average company in each segment (SMB, mid-market, and enterprise) spend on software development services (also known as "wallet size")? What types of services do they pay for (staff augmentation, project-based development, configuration, deployment, etc) and who are the typical decision makers (by segment, eg would be founders for SMB but probably execs like CIO at enterprise)?
Hello! Thanks for asking Wonder to help with your research needs. I understand you are interested in knowing the average amount spent on software development services and the decision makers by business size, along with the typical services this amount is spent on.
The short version is that:
1. Definitions of SMB, mid-market, and enterprise businesses vary widely. If we use SMB Group's definition, I estimate that the average annual amount spent on external software development services is as follows: SMB ($6,769), mid-market ($23,380), large ($60,099). If we use Harvey Nash/KPMG's definition, I estimate the desired numbers to be: SMB (less than $159,500), mid-market ($159,500 to $638,000), large (over $638,000).
2. The types of software development services commonly paid for are not publicly available, but if the services of large vendors are any indication, services include: process integration, product and platform development, support, infrastructure, business processes, and maintenance. Regarding staff augmentation, the trend is towards less IT contractors and more in-house talent.
3. Spiceworks identified several position titles that tech marketers may encounter at SMB, mid-market, and enterprise businesses. The highest position title in each segment is as follows: small (IT Manager), medium (IT Director), large (VP of IT, Team Leader, CTO), and enterprise (CIO).
Below you will find the details of my methodology and findings.
METHODOLOGY
To answer your question, I searched extensively for helpful articles, reports, survey results, and other sources. I made sure to look for the most recent data, especially while searching for the average amounts spent.
Your requested average amounts are not readily available, so I performed several back-of-the-envelope calculations.
AVERAGE AMOUNT SPENT ON SOFTWARE DEVELOPMENT SERVICES
While I did not see any source directly stating, by business size, the expenditure on software development services, I found that The 2017 State of IT report, professional IT network Spiceworks' latest annual report on IT budgets and technology trends, contains some helpful information. According to the report, the IT budget varies with company size as shown below. The median IT budget is $294,081.
1-19 employees - $32,352
20-249 employees - $141,191
50-99 employees - $117,797
100-249 employees - $264,731
250-499 employees - $382,829
500-999 employees - $614,461
1,000-2,499 employees - $732,923
2,500+ employees - $1,883,967
This IT budget is allocated to the following:
Hardware projects - 35%
Software projects - 29%
Managed service projects - 12%
Hosted/cloud-based projects - 17%
Others - 7%
The budget for software projects, in turn, is allocated to the following:
Virtualization - 15%
Productivity - 13%
OS - 13%
CRM/ERP - 10%
Database - 10%
Security - 9%
Backup/Disaster recovery - 9%
I know this is not the breakdown that you want, but I got information from another source which we could apply to this breakdown. Computer Economics, a provider of metrics for IT management, recently released its IT Outsourcing Statistics report for 2016/2017. This report contains outsourcing statistics for 10 IT functions, one of which is application development. The statistics are a result of its survey of 145 IT organizations in the United States and Canada. I do not have access to the full report, but I was able to register for the free 18 sample pages, which gave me the following information:
-- 10.6% of the IT budget, on average, is spent on outsourcing
--"Application development is outsourced, entirely or in part, by 53% of IT organizations."
--"Large organizations outsource an average of 41% of their total application development work when they outsource this function compared with an average 39% for small/midsize organizations."
CEB Global, a best practice insight and technology company, has its finding on outsourcing as well, which supports the 10.6%-percentage given by Computer Economics above. According to CEB Global's 2016 IT Budget Benchmark report, "spending on external resources continues to decline" as shown by the percentages below.
2013 - 17%
2014 - 12%
2015 - 14%
2016 - 11%
As mentioned earlier, we could apply 10.6% or 11% to the IT software budget by business size to get your desired numbers. My only concern is that definitions of small/medium, mid-market, and large companies vary widely. You may see the differences in definition below.
-- Spiceworks, as shown above, defined company size by number of employees. However, only 5% of its respondents have more than 2,500 employees.
-- Computer Economics, as shown above, defined company size in terms of IT budget. Companies with IT budgets that are less than $5 million were classified as 'small', those whose IT budgets range between $5 million and $20 million were classified as 'medium', and those whose IT budgets are greater than $20 million were classified as 'large'.
-- The global Harvey Nash/KPMG CIO survey classified companies in terms of IT budget as well: small (<$100 million), mid-market ($100 million - $250 million), large (>$250 million).
-- SMB Group defined company size as follows: small (1-99 employees), medium (100-999 employees), upper mid-market (1,000-2,500 employees), and large (over 2,500 employees).
I was able to estimate your desired numbers using the following approach.
1. Group company sizes and IT budgets in Spiceworks' report using SMB Group's definition of SMB, mid-market, and large businesses. Use profile of companies surveyed by Spiceworks to get average IT budget for the SMB segment.
SMB, 1-999 employees - $212,191
Mid-market, 1,000-2,500 employees - $732,923
Large, 2,500+ employees - $1,883,967
2. Apply 29% to the segments' average IT budgets to get the budgets for software projects. According to Spiceworks, 29% of the IT budget is allocated to software projects.
SMB - $61,535
Mid-market - $212,548
Large - $546,350
3. Apply 11% to the segments' software budgets to get the portion that is outsourced or spent on external software development services. According to CEB Global, 11% of the IT budget is outsourced.
SMB - $6,769
Mid-market - $23,380
Large - $60,099
If we use either Computer Economics' or Harvey Nash/KPMG's classification of companies by size of IT budget, we will of course arrive at a very different set of amounts. The resulting amounts will be way higher relative to computed amounts above. For example, with the Harvey Nash/KPMG classification, we will get the following results.
SMB - less than $159,500
Mid-market - $159,500 to $638,000
Large - over $638,000
DECISION MAKERS
According to Spiceworks' report "IT Buyer Field Guide: Understanding nature's most influential tech purchases":
-- Most of the time, IT professionals at small businesses assume both the roles business decision maker and IT decision maker.
-- C-suite buyers usually ask their respective IT teams to review and consider tech marketers' proposals. More often than not, they just approve the budget or strategy and they do not engage in the evaluation of solutions and vendors.
Spiceworks explains, in its report, that the Business Decision Maker (BDM) usually goes by the following titles: Business Owner, VP of Sales, CEO, CIO, CTO, CMO, or other C-Suite title. The IT Decision Maker (ITDM), on the other hand, goes by the following titles: IT Pro, Sysadmin, IT Manager, or IT Service Provider. The usual responsibilities of these BDMs and ITDMs are as follows:
"The BDM looks at the big picture and typically: outlines the business objectives, sets the timeline, reviews the selections. And the ITDM is expected to: spot the problem, hunt for solutions, pick the vendor, buy and deploy the product, maintain the solution, and replace the product."
Spiceworks identified the following IT buyers (titles) that a tech marketer may encounter at small, medium, large, and enterprise businesses.
Small - Sysadmin, Help Desk Tech, Network Admin, Network Manager, IT Manager
Medium - All small titles + IT Director
Large - All medium titles + VP of IT, Team Leaders, CTO
Enterprise - All large titles + CIO
TYPICAL SOFTWARE DEVELOPMENT SERVICES AVAILED OF
Not much information can be found online that identifies the external software development services commonly availed of.
Computer Economics identified 10 key functions in its report on IT outsourcing. They are the following: application development, application maintenance, data center operations, database administration, desktop support, disaster recovery services, help desk services, IT security, network operations, web operations. It did not detail, however, the specific application development activities that are usually outsourced.
An April 2016 Software Magazine article on software development outsourcing trends did not specify the types of services normally paid for, but it listed large vendors along with a number of their services. These services include process integration, product and platform development, support, infrastructure, business processes, development and maintenance.
Regarding staff augmentation, it appears the trend is towards less IT contractors and more retention of knowledge in-house. IT contractors as a percentage of total IT staff decreased from 22% in 2013 to 14% in 2016, according to CEB Global.
2013 - 22%
2014 - 17%
2015 - 18%
2016 - 14%
Meanwhile, total IT staff as a share of all business entity FTEs increased from 4% in 2013 to 4.7% in 2016.
CONCLUSION
In summary, definitions of company size vary widely. Nevertheless, twenty-nine percent of a company's IT budget, on average, is allocated to software projects. Of this 29%, 11% is spent on outsourcing. Decision makers in the IT buying process can be categorized into: IT decision makers and business decision makers. Business decision makers range from the IT manager at small businesses to the CIO at enterprises. Not much information can be found online on typical software development services paid for, but if the services of large vendors are any indication, the services include process integration, product and platform development, support, infrastructure, business processes, development and maintenance.
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