When it comes to IT, you might say 2nd Wind had let itself go a little. In 2007, when CFO Tom Kelly joined the exercise-equipment retailer, he discovered that the company's tech systems -- both in its 90 stores and its Eden Prairie, Minnesota, headquarters -- were in a state of neglect. E-mail was being hosted on a seven-year-old version of Microsoft Exchange, and many other applications were behind the times. Kelly estimated it would cost nearly $300,000 just to upgrade 2nd Wind's e-mail software and servers. Instead, he opted to jettison many of the company's old programs and servers and switch to cheaper, Web-based software. This year, 2nd Wind plans to make more tech upgrades, and Kelly thinks the Web-based approach will allow the company to further trim its spending. Here's a look at the budget he inherited compared with his budget for this year.

2007 2009
ANNUAL REVENUE $92 MILLION $100 MILLION*
IT BUDGET $670,900 $259,250
IT AS A PERCENTAGE OF REVENUE 0.7 PERCENT 0.3 PERCENT
IT BUDGET BREAKDOWN
IT STAFF $166,500 $0
ACCOUNTING AND CRM SOFTWARE $190,000 $32,000
PAYROLL AND HR SOFTWARE $55,000 $60,000
E-MAIL $12,000 $26,000
POINT-OF-SALE SOFTWARE $50,000 $23,000
HARDWARE $52,400 $8,250
OTHER APPLICATIONS $0 $15,000
CONSULTING SERVICES $145,000 $95,000

*PROJECTED.

IT Staff

In 2007, the company employed two full-time IT workers and paid $145,000 to consultants to assist with one-off projects. Kelly didn't think the in-house staff members, one of whom had been with the company since the early '90s, had the skills needed to upgrade 2nd Wind's systems to more modern technology. In 2008, Kelly let them go and hired a consulting firm, Agosto, to manage the company's IT for about $95,000 a year.

E-mail

Instead of updating 2nd Wind's outdated e-mail programs and servers, in 2008 Kelly had Agosto set the company up with Google Apps Premier Edition, including Gmail, which was configured to work with employees' existing e-mail addresses. The company paid extra for Postini for spam filtering and e-mail security. The combined services cost about $75 per employee per year and allow 2nd Wind to manage e-mail without in-house servers.

Point-of-Sale Software

This year, Kelly is planning an overhaul of 2nd Wind's point-of-sale system. The company has been using a proprietary system that costs about $50,000 a year in maintenance fees. Kelly plans to replace that with a hosted system from NetSuite. He estimates it will cost $23,000 a year in license fees. Price was a factor, but Kelly says the most important thing is that the new system will provide valuable real-time access to retail data and will handle the data backup and security.

Hardware

In 2007, 2nd Wind bought 20 computers for its retail stores, plus eight laptops and a new server for company headquarters. Now that most of 2nd Wind's programs are Web-based, Kelly plans to stop buying PCs this year and instead buy netbooks and thin-client terminals, which are cheaper because of their small hard drives. Kelly says this will save about $900 per workstation. He plans to spend about $8,250 to buy 15 to 20 terminals in 2009. Then, he will swap out all of 2nd Wind's old computers starting in 2010.

Accounting and CRM Software

Kelly ditched the company's Peachtree accounting software and $180,000-a-year CRM software last year. Then, he signed up for NetSuite, which costs him about $32,000 annually. Because it's easy to use and Agosto helps with setup and support, Kelly doesn't have to shell out for NetSuite's Platinum service, which includes a dedicated support person.

Payroll and HR Software

In 2008, Kelly got rid of the old payroll software from Payroll Control Systems and set up a Web-based payroll system from ADP. Instead of filing expenses manually, 2nd Wind now uses a hosted application from ADP, which cuts down on data entry. That let Kelly reduce the number of employees in the finance department from 12 to four, which saved more than $300,000. Using ADP's HR software, which handles online benefits enrollment, allowed Kelly to take over as HR manager.