Counterintuitive Truth: Small Companies Spend More as % of IT Budget
A counterintuitive reality in cybersecurity: smaller companies often spend higher percentages of their IT budgets on security than large enterprises. While absolute spending increases with company size, per-employee and per-dollar-revenue spending often decreases.
Example comparison:
- Startup (50 employees, $5M revenue): 20% of $200K IT budget = $40K/year
- Mid-market (1,000 employees, $100M revenue): 12% of $2M IT budget = $240K/year
- Enterprise (10,000 employees, $1B revenue): 8% of $20M IT budget = $1.6M/year
Notice: Enterprise spends most total ($1.6M), but per employee (1,000x more employees):
- Startup: $800 per employee
- Mid-market: $240 per employee
- Enterprise: $160 per employee
This relationship exists because security costs don't scale linearly with organization size.
Fixed Costs vs. Variable Costs in Security
Security spending contains significant fixed costs that don't scale with organization size:
Fixed costs (don't increase much with size):
- Firewalls: $20K one-time, serves organization regardless of size
- SIEM platform: $30K per year, handles logs from 10 or 10,000 systems
- Security leadership: CISO cost is similar whether managing 50 or 5,000 employees
- Policy and governance infrastructure: Cost is similar across organizations
Variable costs (scale with size):
- Endpoint security licenses: Cost per device (varies but often lower volume)
- Personnel: Need more staff as organization grows
- Training and awareness: More employees = more training costs
- Incident response: Larger organizations face larger incidents
Because fixed costs don't scale but organization size does, larger organizations achieve economies of scale.
Small Companies (1-100 employees)
Typical cybersecurity budget: 15-25% of IT spending
Why high percentage:
- Can't achieve economies of scale
- Must buy enterprise tools at full price
- Professional services and consulting are expensive per employee
- Limited budget for automation, so more manual processes
- Often lack in-house expertise, requiring contractors
Typical spending structure:
- Personnel: 30-40% (often part-time security person plus contractors)
- Tools and software: 40-50% (firewalls, endpoint protection, etc.)
- Professional services: 15-25% (assessments, consulting, training)
- Compliance and governance: 5-10%
Challenges:
- Can't afford dedicated security team (person is multi-functional)
- Tools are expensive relative to size (no volume discounts)
- Skill gaps are difficult to fill
- Security is often delegated to IT manager not specialized in security
Solutions:
- Use managed services (MSSP) instead of building in-house
- Leverage open-source tools where possible
- Prioritize foundational controls (MFA, EDR, backups)
- Outsource compliance and assessment to consultants
- Focus on risk-based approach rather than comprehensive coverage
Mid-Market Companies (100-5,000 employees)
Typical cybersecurity budget: 10-15% of IT spending
Why moderate percentage:
- Beginning to achieve economies of scale
- Can build small internal security team (3-10 people)
- Tool costs become more reasonable at scale
- Can negotiate volume discounts
- Starting to achieve operational efficiency
Typical spending structure:
- Personnel: 40-50% (dedicated security team forming)
- Tools and software: 35-45% (internal infrastructure growing)
- Professional services: 10-15% (specialized assessments, penetration testing)
- Compliance and governance: 5-10%
Typical team structure:
- 1 CISO/Security Manager
- 1-2 Security Engineers
- 1-2 SOC Analysts (might be part-time)
- 1 Compliance/Risk person
- 1-2 Contractors for specialized skills
Strengths:
- Dedicated security leadership
- Ability to build in-house expertise
- Can negotiate reasonable tool pricing
- Beginning operational efficiency
Challenges:
- Still can't match large enterprise efficiency
- Difficult to hire specialized talent (competition from larger companies)
- Tool consolidation still difficult (growing tool complexity)
- Limited budget for innovation
Enterprise (5,000+ employees)
Typical cybersecurity budget: 8-12% of IT spending
Why lower percentage:
- Significant economies of scale
- Large enough to build specialized security teams
- Negotiate enterprise pricing on tools
- High automation reducing manual effort
- Leverage open-source software where appropriate
Typical spending structure:
- Personnel: 50-60% (large specialized teams)
- Tools and software: 25-35% (leveraging volume discounts, internal development)
- Professional services: 5-10% (mainly for specific assessments)
- Compliance and governance: 5-10%
Typical team structure (large enterprise):
- CISO and Executive staff: 3-5 people
- Security Engineering and Architecture: 10-20 people
- SOC and Incident Response: 15-30 people (24/7 coverage)
- Compliance and Risk: 5-10 people
- Specialized teams (Cloud, Application, OT): 10-30 people
- Total: 50-100+ people
Strengths:
- High specialization and expertise
- Significant automation reducing manual work
- Can build custom tools and platforms
- Leverage open-source tools extensively
- Sophisticated risk management and governance
Challenges:
- Organizational complexity (many teams, coordination challenges)
- Legacy infrastructure (difficult to modernize)
- Tool sprawl (too many tools requiring integration)
- Difficult to implement consistent security across organization
- Significant skill retention challenges due to high demand
Growth Stage Effects: Building Security Programs
As organizations grow, security programs must mature in parallel:
Stage 1 (0-50 employees):
- IT manager handles security part-time
- Firewalls, basic antivirus
- Few formal policies
- Budget: $5K-$50K annually
Stage 2 (50-200 employees):
- First dedicated security person
- Basic security infrastructure (MFA, EDR, SIEM basics)
- Formal policies emerging
- Budget: $30K-$150K annually
Stage 3 (200-1,000 employees):
- Security team growing (3-5 people)
- Mature security infrastructure
- Formal governance and compliance programs
- Budget: $150K-$500K annually
Stage 4 (1,000-5,000 employees):
- Dedicated security team (10-20 people)
- Specialized functions (SOC, incident response, compliance)
- Advanced security capabilities
- Budget: $500K-$2M annually
Stage 5 (5,000+ employees):
- Large specialized security organization (50-100+ people)
- Enterprise-grade security platform
- Sophisticated governance and risk management
- Budget: $2M-$10M+ annually
Most organizations underfund security during growth phases, creating security gaps that emerge later.
The Startup Security Conundrum
Startups face particular security challenges:
Limited budget: Startups have limited funds; security competes with product development.
High growth: Security must scale as product and customer base grow.
Compliance pressure: Customers increasingly require security before contracting.
Talent scarcity: Can't compete with large companies for top security talent.
Funding cycles: Security budgets depend on funding rounds; security often deferred until after funding.
Optimal startup security approach:
- Focus on foundational controls (strong identity management, encryption, backups)
- Use SaaS security services (less upfront cost than building infrastructure)
- Hire one security generalist (not possible to hire specialists)
- Outsource specialized functions (penetration testing, compliance assessments)
- Plan security investment proportional to growth
- Prioritize controls customers require
Budget as Percentage of Revenue
Another way to think about security spending:
By revenue:
- Small companies (<$10M revenue): 0.1-0.5% of revenue on security
- Mid-market ($10M-$1B revenue): 0.05-0.2% of revenue on security
- Enterprise (>$1B revenue): 0.02-0.1% of revenue on security
This further illustrates that smaller organizations spend higher percentages of resources on security.
The Risk Paradox
Paradoxically, smaller organizations often have higher risk:
Smaller companies face:
- Fewer resources to secure systems
- Limited security expertise
- Less sophisticated attackers target them (easier targets)
- More likely to use cloud/SaaS (shared risk)
- Often in high-growth mode (security often secondary)
Yet smaller companies spend more as percentage of IT budget, suggesting they understand they must invest heavily to compensate for scale disadvantages.
Scaling Security Program as Company Grows
When scaling security with company growth:
Hire for breadth first: First security hire should be generalist, not specialist. Second hire adds specialization.
Shift from contractor to employee: Early security often from contractors; as organization matures, shift to employees for consistency.
Move from managed services to internal: Early stage might use MSSP; growing organizations often move to internal operations for control and cost.
Increase automation: As organization scales, automate security processes to maintain efficiency.
Invest in infrastructure: Early stages use basic tools; growing organizations need sophisticated platforms.
Build specialization: Large organizations can afford specialized roles; smaller can't.
Conclusion
Company size significantly impacts cybersecurity spending as both absolute amount and percentage of IT budget. Paradoxically, smaller companies spend higher percentages of IT budgets due to inability to achieve economies of scale. Fixed security costs don't scale with organization size, creating efficiency advantages for larger organizations. Startups and small companies should focus on foundational controls, leverage managed services, and outsource specialized functions. Growing organizations should invest in infrastructure and talent as they scale. Large enterprises should focus on optimization and automation. Understanding how company size affects security spending helps organizations budget appropriately for their stage of growth.
