This metric helps you estimate how much of your company’s gross income to spend on payroll.
How it's calculated
This metric takes the total of salaries & wages plus employee-related expenses, divides that total by revenue, and expresses it as a percentage.
What it means
This metric helps you estimate how much of your company’s gross income to spend on payroll. For this metric, payroll includes salaries and wages for on-staff and contract employees plus employee-related expenses (benefits, taxes, etc.).
Spending too much of your revenue on personnel can result in your business being unprofitable. On the other hand, spending too little can make it difficult to attract and keep good employees. This metric can also tell you something about a company’s efficiency. If two similar companies generate the same revenue, but one does it with 30% fewer people, the more efficient company will clearly be more profitable.
Keep in mind that this percentage may vary quite a bit by industry. So, for this benchmark, it’s best to compare your company to those in the same industry.