It is important to know what percentage of your revenue (gross sales) goes towards payroll.  For most companies payroll is the single largest cost to the business.  Managing this number is important to the bottom line.  Every industry has its own metrics to determine the right range for payroll percentage.

Businesses that find themselves in a situation where payroll exceeds 50 perent of revenue will find it difficult to have money left over to focus on growing the business.  Hence, as a general rule you should try to keep it at less than 38 percent.

To calculate your payroll percentage you will need two(2) key pices of information:  Gross Revenues and Payroll Expenses.

Perform these calculations with your Revenues and Payroll Expenses:

Payroll Expenses  /  Gross Revenues    =  result   X  100  = Payroll Percentage

For example: 

$30,000  /  $100,000 =  0.30  X 100 = 30%  (Payroll equals 30% of Revenues)

Payroll Expenses should include: wages, paid vacation, health insurance, life insurance, retirement plans, social security taxes, medicare taxes, paid sick leave, unemployment insurance, disability, allowances (e.g. transportation), payroll related state & local taxes, etc.

Gross Revenues should include:  Revenues should not include passed on charges such as sales taxes, shipping charges, rental charges that are passed on to customers.  All other sales generated should be calculated as Gross Revenues.