Business Strategy

Why Businesses Are Switching from CapEx to OpEx for their IT Investments

Post by
Net Friends

IT investments are critical for your company’s success. According to Gartner, worldwide IT spending is expected to grow by 2.4% to $4.5 trillion in 2023. Traditionally, acquiring IT assets meant purchasing them outright as a part of your capital expenses. However, with rapid innovations, businesses need to keep up with the latest technology. Following an operating expense model can help your company keep up while curbing overspending and optimizing your IT budget. Explore the difference between capital expenses (CapEx) and operating expenses (OpEx), and the advantages of acquiring your IT assets and IT services via OpEx.

Why businesses are switching from CapEx to OpEx for their IT expenses comparison graphic with mountain and sunrise

The Limits of CapEx for IT Acquisitions

Capital expenses (CapEx) in business are expenditures to acquire, upgrade, and maintain physical assets such as properties, buildings, and IT equipment (e.g. servers and power systems). CapEx are one-time purchases that will benefit your company over several years. The CapEx framework is the traditional method of making IT investments, but it requires significant upfront spending.

Challenges with CapEx - Capital Expenses - for IT

The more your IT budget is allocated to capital expenditures, the less cash flow is available for short-term operations and special projects. Other challenges that arise with CapEx include:

1. Greater likelihood of making errors estimating future capacity requirements when purchasing IT assets and IT services.
2. Lengthy and difficult red tape involved with estimating the IT budget and getting it approved.
3. Once the technology is acquired, your company is locked in and unable to take advantage of the latest tech innovations.
4. Difficulty in scaling upwards and downwards in response to changing market conditions.
5. Overspending occurs in an attempt to keep up with rapid IT and market changes.

Top 7 Benefits of OpEx for Your IT Investments

Operating expenses (OpEx) are the costs of your company’s daily operations, including annual service agreements (e.g. web hosting and web domain registrations), consumables, electricity, rents, and wages.

The OpEx approach to IT typically involves your company leasing hardware assets, which are often bundled with essential IT services.
7 Benefits of OpEx Operating Expenses Graphical List

While you can acquire IT investments outright via CapEx, choosing the OpEx route has many advantages:

1. Lower Upfront Costs

With OpEx, you don’t need to pay for all your technology assets at once. Once you sign a leasing contract with your chosen Managed IT Services Provider, you access the hardware assets and IT services you need for a fixed and predictable monthly cost. This frees up a huge chunk of your IT budget for other revenue-generating projects.

2. Avoid Depreciation with OpEx

Choosing to follow a CapEx framework means worrying about your IT assets depreciating or aging behind the latest technologies. However, leasing your IT equipment under OpEx means that you don’t have to worry about your equipment's lifespan or hardware aging, because all maintenance and upgrades are typically included with a service provider.

3. Access to the Latest IT Assets & IT Services

OpEx offers several options to access the most recent IT assets and IT services for your company. With a managed IT infrastructure agreement, you get a reliable and secure network at affordable, fixed costs. Your company won’t need to purchase expensive licenses to own. The operating expenses (OpEx) model offers many as-a-service options, such as Software-as-a-Service (SaaS), Infractructure-as-a-Service (IaaS), and Device-as-a-Service (DaaS), to keep your company’s operations current and performing at the optimal levels.

4. Reduced Responsibility for Maintenance & Upgrades

Once your company has a dependable and high-quality Managed IT Services Provider, you don’t have to worry about maintenance and upgrades. All your backups, operating system upgrades, IT support and repairs, and onboarding assistance for your teams, are often included in your agreement. This frees your internal IT team to do their best work to grow your company.

5. Less Red Tape when you Switch to OpEx

Since you pay low monthly costs, the OpEx IT budget approval process is much faster. This reduces valuable time lost in meetings or chasing signatures, and facilitates more productive outcomes.

6. Easy-to-Scale & Respond to the Market

Technology and markets are constantly evolving. Therefore, your business operations should be scalable and responsive to these changing conditions. With a flexible OpEx model, there’s no long-term commitment and you can quickly:

  • Turn services on and off as needed.
  • Easily switch to a new product that better suits your company’s requirements.
  • Quickly scale your operations upward and downward. 

7. Stable IT Budget & Predictable Spending

Leasing IT assets and enrolling in IT services on an "as-needed" basis means spending less of your IT budget. Also, with fixed and affordable monthly costs, you can easily forecast your IT spending. Furthermore, predictable spending makes it easy to calculate the ROI for your IT investments.

Making the Switch from CapEx to OpEx

There’s a clear distinction between CapEx and OpEx, and the fast pace of technology proves more amenable to the fluid nature of OpEx. Do you need to switch your company’s IT investments from CapEx acquisitions to operating expenses? Net Friends is your ideal partner to make this critical transition and improve your IT budgeting process.

We offer NetCore, our managed IT infrastructure service, that’s designed for all businesses to help eliminate overspending and optimize IT budgets. You will benefit from a dependable, secure, and cost-effective network to improve your productivity and increase your profit margins.

NetCore provides a cutting-edge bundle of hardware assets and IT services to handle all your main network requirements. Our experienced network security professionals will design and deploy the latest and best equipment and keep them in optimal and secure operation.

You’ll never have to worry about maintenance and upgrades as we take care of all the technical details while you focus on running your core business operations. 

Contact us today for comprehensive assistance to switch from a capital expenses (CapEx) framework to an operating expenses (OpEx) model. Let’s work together to make the most of your IT budget and maximize your profits and market share.

Originally Published: June 10, 2021
Revised: February 9, 2023

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At Net Friends, we believe in the power of human expertise. While we leverage AI to enhance our content and processes, all blog posts are written and edited by our knowledgeable staff. You can trust you are getting insights directly from our team.

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