Wages percentage
Also called: wage cost percentage · labour cost percentage · wages to turnover ratio
Total wages expressed as a percentage of revenue over the same period — the standard measure of what a business spends on people to earn what it earns.
Wages percentage is the number most service businesses feel before they measure. It rises quietly: a hire made in a busy month, hours that crept up, a wage review given without a matching change in price. Nothing about any single decision looks wrong, and the month still ends short.
What counts as "wages" matters more than the arithmetic. The honest version includes superannuation or KiwiSaver, leave as it is earned rather than as it is taken, payroll tax where it applies, workers' compensation cover or ACC levies in New Zealand, and — the one most owners leave out — the owner's own labour at a market rate for the job they actually do. A business that looks healthy only because the owner is unpaid is not showing you its real cost of delivery.
There is no single correct figure, because the right number depends on what the business sells. A trade business carrying materials sits lower than a salon, where labour is nearly the whole product. Benchmarks are useful for noticing that you are well outside the normal band for your kind of business; they are not targets, and chasing someone else's number is how good staff get cut out of a business that needed them.
The direction of travel usually says more than the level. A wages percentage climbing three months in a row is a signal regardless of where it started — it means revenue and labour have come uncoupled, and one of pricing, capacity, or the mix of work being sold has shifted without anyone deciding it should.
How it's worked out
Wages percentage = (total wage cost ÷ revenue) × 100, for the same period
Use the same period on both sides, and include on-costs — super or KiwiSaver, leave accrual, payroll tax, workers' cover or ACC levies — plus a market-rate figure for the owner's own labour. Excluding those is the most common reason a wages percentage looks fine on paper.
What it tells you
Whether the business is pricing its work high enough to pay the people doing it — and whether a busy period is actually earning anything.
Work out yours with the free wages calculator →See also
Break-even
The level of revenue at which a business covers all of its costs and makes neither a profit nor a loss — the point where everything above it starts to be worth something.
EBITDA
A measure of profit that strips out interest, tax, depreciation and amortisation, in order to show what the trading operation earns before financing and accounting decisions are applied to it.
Business health check
A short structured review of a business across its main areas — money, customers, team, owner load and direction — used to locate where a problem sits before committing to deeper work.
A definition tells you what the word means. It can't tell you whether it's your problem — that takes a look at the actual business.
Take the free health check