Payroll As A % of Revenue

Welcome to this week’s installment on key metrics to stay on top of your business health! Head over to our Youtube channel and take a look at these articles from Chron, Juice, ReadyRatios, and Forbes to learn more.

This key metric is very important, but there is no general rule on what the percentage of your revenue payroll should be. It has everything to do with what industry you’re in. If you are in the food service industry, you’re going to have a very different percentage of payroll to revenue than you will if you’re in a manufacturing business. If you’re in a service industry, you’re going to have a very high payroll to revenue percentage because your entire product is people. If you’re in the software business, depends on what kind, but generally you’re going to have a very high one because most of your cost is the people developing your software.

You may read an article now and then that says your payroll should be __% of your revenue, with no context whatsoever as to what industry you’re. That’s useless information at best, and at the worst, misleading to the reader. This is an important metric that should be followed, but it’s particularly key to see how you’re doing as compared to others in your industry.

We shared some links above to some great sites that give you metrics by industry. Even their info, you’ll have to do some work. There are some other, perhaps better, paid services, if you’re really into this and you’re really going to be benchmarking. Or perhaps a trade association that you belong to that will collect data from members and then share that anonymously for benchmarking purposes. A lot of these percentages will change depending on what tier you’re at. A 20 restaurant chain will have different ratios than a single owner, single site restaurant. But remember, anytime you’re drilling down numbers, you’ve got to really know what you’re comparing yours to.

If there’s any way we can help you, let us know!

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