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Staff wages are 70% of total income

Good afternoon all,

I have been speaking with a friend of mine that runs a consultancy firm and his business has been struggling this year, never making a profit and his creditors are starting to pile up. He was explaining that his biggest expenses were the wages, they total 70% of his monthly income and after they are paid he hardly has enough to cover the other expenses.

Is it just me or is 70% of total income on wages just unacceptable? What percentage of income should normally be budgeted for wages?

Personally I know that the guy likes to believe he is profitable and likes other people to believe he is profitable, so I wouldn’t be surprised if half the staff were there just for the sake of his ego. He employs about 30 staff members and about 10 do admin and 3 are his P.A’s.

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23rd Sep 2011 15:41

No hard & fast rule

A very rough approximation would be be 1/3rd wages, 1/3rd overheads, 1/3 profit, but this all depends on the business.

Does he have business premises to maintain, large advertising costs, etc.

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23rd Sep 2011 15:52

I thought a rough figure of 45% at the most would be enough for wages.

 

He has an office building, advertising costs, the full works; however he takes the costs on credit and obviously doesn’t have enough funds left after wages to ensure payment of all expenses even with the credit terms.

 

I want to tell him to cut some staff or at least their wages, I know this is awful on the employees, but at the end of the day its business and he can’t afford to pay them.

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23rd Sep 2011 15:56

Better for some to have employment

Than the business fold and leave them all out of work.

Sad, but necessary, unless he can somehow improve profitability.

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Simple

There can be no fixed percentage as every trade is dfferent.

However, its quite obvious that he is either employing too many staff, paying them too much, or, hasnt got enough work.   He either needs to get more work in without increasing staff, or start decreasing staff numbers.

1 admn staff for every 2 workers ?

3 PA's ?

I know where I would start cutting first.

 

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23rd Sep 2011 16:55

Staff

If the business's only income is from hiring out the consultants, then he seems to have a hugely disproportionate number of admin staff (and I include his three 'PAs' in that category).

In this type of business it might be OK for the wage bill to be a higher proportion of the total costs than normal. After all there will be relatively little other cost, since there's no stock to buy or large workplace to maintain - I assume the consultants are working on customer sites most of the time and don't all need permanent desk space at HQ.

However, such a large proportion of non revenue-earning staff will kill this type of business eventually unless the charge-out rate for the consultants is very high in comparison to their own earnings. What on earth do all the admin people find to do?

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