Labor as a Percentage of Revenue

Written By Jody Boryski

Labor is often one of the largest expenses for small businesses—whether that’s payroll, subcontractors, or even your own time. Tracking how much of your revenue goes toward labor helps you:

  • Understand your profitability

  • Spot potential overstaffing or inefficiencies

  • Make informed decisions about pricing, hiring, and scaling

It’s especially important for service-based businesses, where labor drives revenue.

Calculation

Labor % = (Total Labor Costs ÷ Total Revenue) × 100

Include in Labor Costs:

  • Gross wages or salaries

  • Payroll taxes

  • Benefits (if applicable)

  • Independent contractor payments (1099s)

Example:
If your business earned $50,000 in revenue this month and you spent $20,000 on labor:

($20,000 ÷ $50,000) × 100 = 40% labor-to-revenue ratio

What’s a Good Benchmark?

  • Under 30% is excellent for many industries

  • 30–50% is common for service-based businesses

  • Over 50% may indicate the need to evaluate efficiency, pricing, or workload balance

These ranges vary by industry, so context matters—but consistent tracking will help you identify trends and issues over time.

Jody Boryski
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