📊Labor Cost Ratio Checker

Check if your payroll-to-revenue ratio is healthy for your industry

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Understanding Labor Cost as a Percentage of Revenue

Labor cost ratio = Total Labor Costs ÷ Revenue × 100%. This metric tells you what proportion of your revenue goes to paying people. Too high, and your profit margins collapse. Too low, you may be understaffed and sacrificing service quality.

Industry Benchmarks

IndustryHealthy Range
Restaurant / Food25% – 35%
Retail15% – 25%
Manufacturing20% – 30%
Service Business30% – 40%
Tech / Software40% – 60%

Frequently Asked Questions

Should I include payroll taxes and benefits in labor cost?

Yes. Total labor cost should include employer payroll taxes (~7.65% FICA), health insurance, retirement match, workers' comp, and PTO. This fully loaded rate is 20–30% above base wages.

My ratio is high — should I cut staff?

Not necessarily. First evaluate whether labor is productive and whether revenue can grow. Cutting staff can hurt service and revenue. Look for scheduling optimization and automation before headcount reductions.

How often should I track this metric?

Monthly is ideal for restaurants and retail. Quarterly is sufficient for service businesses. Always compare against the same period last year to account for seasonality.