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Proportion of turnover on staff costs?

I am trying to work out what a reasonable proportion of our turnover to go towards staff costs is.

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As an accountancy practice with 10 employees covering accounts, tax, bookkeeping and payroll,. I am trying to work out if our proportion of turnover on staffing is reasonable. I know that it varies depending on the owner-manager dividend situation but I would be interested to know of similar sized firms proportion of turnover spent on Gross Wages, pension, NIC etc to be able to benchmark and work out if we are too high, too low or about right!

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By johnjenkins
30th Mar 2021 10:07

Work backwards. You normally multiply your staff costs by 3 to get charge out rate to clients. So multiply your staff wages by 3 and compare that with your annual turnover. It's a very simplistic calculation but it will give you an idea.

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@enanen
By enanen
30th Mar 2021 10:12

bank profiles look for 40% salary indicator for accountancy firms.

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blue sheep
By Nigel Henshaw
30th Mar 2021 10:14

The standard has always been thirds, staff, overhead, profit, not sure it still strictly applies these days, and of course each situation is different but it's a good place to start

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Maytuna
By DJKL
30th Mar 2021 11:22

Three times is fine re billable staff, but you also need to consider non billable staff as well if you have any, therefore somewhere at 33% up to 40% seems reasonable to cover admin staff.

One other consideration moving the percentage the other way is type of business and how the owners are rewarded, if say a ten employee partnership with also four partners not on payroll doing chargeable work the relationship of fees to salaries will likely be very different, accordingly you need to study the relationship taking into account the particular circumstances of the specific business.

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By Chris Maslin
30th Mar 2021 17:31

Personally I'm unsure if the 1/3 salaries, 1/3 other overheads, 1/3 profit mantra still holds true. Generally speaking people keep getting more expensive, whilst everything else gets cheaper. For our year ended 31 March 2021 (doubt much will change tomorrow!), we'll have >50% of turnover going on salaries (including employer NICs, pension etc). That does include staff members who are more admin/marketing types than technical accounting, so perhaps they should come under the other overheads bit. Even then I think it'd be barely under 50% on purely accounting staff. However, on the plus side, our other overheads are a fair bit below 33% of turnover.

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Pile of Stones
By Beach Accountancy
30th Mar 2021 19:36

When I worked in industry in a service based company (lots of people, low overheads) we used to worry if staff costs were 70% of turnover. 60% meant a sensible amount of profit.

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By CatsandDogs
07th Apr 2021 17:01

Thanks everyone - I didn't get an alert that there were answers so haven't seen until now. We are around 60% but other overheads are less than 20% so I'm not sure that the three thirds principle still holds true. What do accountants spend money on other than software and rent!

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Replying to CatsandDogs:
Maytuna
By DJKL
07th Apr 2021 17:11

Insurance, PII,CPD, rates, H & L, publications, travel, coffee (an important head), repairs, equipment depreciation (which with tech can be as short as three year lifespan), shredders, waste uplift, PSA, marketing- sure there can be more.

In my case never amounted to much but I worked from home.

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