Unveiling the Mystery: How Much Should Nonprofits Spend on Technology

When talking to clients about technology strategy and digital transformation, the top question I get asked is, "Do you know what our nonprofit peers are spending on technology?" Sadly, this is a very hard question, and the answer is never satisfactory.

As a former CIO for the National Multiple Sclerosis Society and part of the farm credit system at CoBank, I know first-hand how difficult it is to obtain accurate and comprehensive data on nonprofit technology spending. Over time, I have tried to analyze technology spending data when I stumbled across it.

Based on my analysis of about 20 nonprofit organizations, the average tech spend for these organizations is 4.1% of operating expenses. In addition, Gartner has published in the past that organizations that are part of Higher Ed spend about 4.8% of revenue on technology. In comparison, state and local governments spend about 4.9% of their revenue on technology. Unfortunately, that is all the usable data I have found over the years.

It is essential to note that nonprofit technology spending varies widely, and every organization captures its technology spending data differently. Some nonprofits consolidate all technology spending inside of IT, while others distribute it across several departments. Nonprofits also classify technology expenses as operating expenses or capital using different methodologies. So, when I come across data, it is hard to know whether it is comparable to the data I already have.

To make informed decisions about technology spending, nonprofits should analyze their historical spending patterns. Fluctuations in spending (and, more importantly, the reasons behind these fluctuations) can provide valuable insights into where organizations invest their resources. For example, a sudden increase in technology spending may indicate an attempt to pay off accumulated technical debt. Nonprofits can avoid accumulating technical debt by maintaining a consistent level of spending each year.

My high-level advice to nonprofits is to aim for consistent technology spending to prevent accumulating significant technical debt. While nothing magical about the 4.1% number, it provides a useful reference point for organizations to gauge their investments. If your organization is spending significantly less than 4%, you are probably spending too little, and if you are spending significantly more than 4%, it is crucial to understand why.