How much should a nonprofit spend on technology?

Your board chair read somewhere that nonprofits should spend three to five percent of budget on technology, your treasurer says the number is closer to one after a finance committee meeting spent on it, and the consultant who quoted you said everyone under-invests. All three are quoting a different definition. Here is what the filings actually show, what the number leaves out, and how to set yours.

About one percent, and why that is not the answer

The median nonprofit that reports technology spending on its Form 990 books about one percent of total expenses on that line, and the figure barely moves with organizational size: 1.0% to 1.2% from $500k in revenue to $250M and above. That comes from the Nonprofit IT Spending Benchmark 2026, an analysis of 325,263 tax year 2023 Form 990 filings published by Scottship Solutions. The same report shows the middle half of organizations between $3M and $50M running from 0.5% to 2.1%, a spread ten times wider than the gap between size bands. So the useful question is not whether you are at one percent. It is which half of that range you are in, why, and whether the Form 990 line is even capturing what you spend. This piece is part of our technology strategy coverage.

What the benchmark measures, and what it misses

The Form 990 line behind the benchmark is Part IX line 14, information technology. The methodology defines the measure as reported spending on information technology services, excluding technology payroll (lines 5 through 10), telecommunications (line 13), and depreciation (line 22). In practice line 14 is where outsourced technology work, managed services, help desk contracts, and most software subscriptions land.

Three things follow from that definition, and they change how you use the number.

First, the benchmark is a floor, not the total cost of running technology. Your operations manager’s time administering the donor database is payroll. Your internet and phones are line 13. The laptops you bought last year are depreciating on line 22. None of that is in the one percent.

Second, only 34.2% of filers report anything above zero on line 14. The report examined a sample of the zeros and found that 77.4% carried no technology element anywhere in the filing, which means most zeros are blanks, not organizations running with no software. If your accountant codes subscriptions to “office expense,” you are one of those blanks, and comparing yourself to the benchmark tells you nothing until the coding is fixed.

Third, the median is a median. Half of reporting organizations spend less than it. That is not a target. It is the middle of a distribution that includes organizations coasting on a spreadsheet and organizations mid-migration.

The benchmark by budget band

The report segments by total revenue. The share is flat; the dollars are not.

Source: Nonprofit IT Spending Benchmark 2026, tax year 2023 filings. Blank cells are bands the report does not break out for reporting propensity.

For organizations in the $3M to $50M band, the report gives the dollar picture too: a median of $81,858 a year on line 14, a lower quartile of $30,808, an upper quartile of $207,469, and a 90th percentile of $461,037. Per W-2 employee, the median is $1,281.

Older survey data points the same direction. NTEN’s 2017 Technology Staffing and Investments Report, a self-reported survey of 259 organizations, found a median technology spend of 1.7% of operating budget for organizations between $1M and $5M and 2.0% between $5M and $10M, with averages of 4.8% and 2.8%. Survey respondents define technology more broadly than line 14, so higher medians are expected. The pattern that matters is the same in both: a low median with a long right tail.

Mission area moves the number more than size does

The most useful table in the report is the one most people skip. Within the $3M to $50M band, the median share varies by mission area from 0.77% for grantmaking foundations to 1.46% for mental health and crisis organizations.

Source: Nonprofit IT Spending Benchmark 2026.

The logic is not mysterious. A crisis line runs a case management system, a scheduling system, and a compliance stack, and every one of them has to work at 3 a.m. A grantmaker runs a grants database and email. Compare yourself to organizations doing your kind of work, not to nonprofits as a whole.

The trend: dollars up, share flat

Between tax years 2015 and 2023, the median line 14 share for the $3M to $50M band rose from 0.79% to 1.09%. It spiked to 1.13% in tax year 2021, about 11.5% above the pre-COVID trend, then settled back to within a fraction of a percent of trend by 2023. The dollars kept climbing while the share flattened: for a fixed panel of organizations filing every year from 2017 to 2023, real technology spending rose 21.2%, and budgets grew faster than technology in the last two years of the series.

Read that as a warning against the board argument that “everyone is spending more on technology now.” Everyone is spending more dollars. As a share of budget, nonprofits as a group went back to where they were heading before 2020.

How to set your own number

Do not start from the percentage. Start from the inventory and let the percentage be the check at the end. The one-page technology roadmap walks through the inventory; here is how it turns into a budget line.

Build the number bottom-up in four buckets, and keep each bucket on its own line so the board can see what moves.

Then add the payroll share: the fraction of named people’s time that goes to running systems. At most organizations in this range that is one operations or systems person at half to three quarters of their week, plus a few hours a month from whoever administers the donor database. It does not show up in the benchmark. It is real money.

Here is the worked example for a hypothetical $9M human services organization with 70 staff across four sites. The figures are invented for the example and carry no source.

Three observations from the table. The organization’s line 14 sits right at the human services median, so a board member checking the benchmark would call it normal. The bottom-up number is more than twice the reported line because devices and part of the support contract are coded elsewhere. And the full cost, with payroll, is 3.0% of expenses, close to where NTEN’s survey averages sit and where this organization would land if a survey asked it the question.

Reading your number against the benchmark

Once you have the bottom-up figure, compare the licenses-plus-support portion, which is what line 14 is meant to hold, to the band for your mission area. Then apply three tests.

Under 0.5% of expenses with more than twenty-five staff is the signal to look harder, because the lower quartile of the $3M to $50M band starts there. It usually means one of three things: subscriptions are coded as office expense, a single person is doing unpaid systems work on top of a program job, or the organization is running on tools it outgrew. Only the first is harmless.

Above 2.1% on the licenses-and-support portion alone puts you in the top quartile. That is not wrong. It is a question: which project or contract is driving it, does it end, and what does the board expect to see when it does. A migration year at 2.5% that drops to 1.2% is a plan. A permanent 2.5% with no named reason is a vendor problem.

Between those lines, the percentage has told you all it can. Spend the board’s attention on the three moves for the year, not the ratio.

What to tell the board

Boards ask for a percentage because it feels like accountability. Give them one number and three lines under it.

The number is the full cost of technology as a share of expenses, payroll included, with last year’s figure beside it. The three lines are the bucket table above collapsed: what we run, what it costs to keep running, and what we are changing this year. Put the benchmark in a footnote, with the mission-area median, not the all-nonprofit median, and say in one sentence that the reported line understates total cost for every organization, yours included.

NTEN’s 2024 Nonprofit Digital Investments Report found that 45% of responding organizations believe they spend too little on technology and 77% name budget as the main barrier. A board that sees the full cost, the plan, and the benchmark on one page tends to stop asking whether the number is right and start asking what the three moves will do. That is the conversation you want.

The median is the middle of a distribution that includes organizations coasting on a spreadsheet and organizations mid-migration. It is not a target.

When not to do this

Skip the bottom-up exercise this year if you are under $1M in revenue and have no staff member whose job includes systems. Your technology budget is your subscription list, and the benchmark for your band (1.2% to 2.1%) is mostly noise from small filers reporting a single contract. Write the subscriptions down, put a renewal date on each, and revisit when you hire your first operations person.

Skip the benchmark comparison entirely if your Form 990 line 14 has been zero or inconsistent for the last three years. The comparison will flatter or alarm you for reasons that have nothing to do with what you spend. Fix the coding with your accountant at the next close, then compare next year.

And do not use any of this to decide whether to buy a specific system. That is a question for the roadmap and the criteria in How to choose a nonprofit CRM . A percentage cannot tell you whether the case management migration is worth doing. It can only tell you, after you have decided, whether the year it lands will look unusual to a board member with a calculator.