How to Figure Payroll to Sales Ratio

If a company is looking to increase its income, one of the first places it normally looks is its payroll. A company can use the payroll to sales ratio to determine how much of each dollar of sales goes to paying employee salaries. This number will always be under 1, unless the company does not want to stay in business long. The ratio will vary depending on the company's industry. Companies should try to keep expenses to a minimum to create income.

Instructions

1. Find the company's payroll expense on the income statement. For example, Firm A has an employee expense of $900.

2. Determine the company's sales revenue on the income statement. In the example, Firm A has $2,000 of sales.

3. Divide the company's payroll expense by the sales expense. In the example, $900 divided by $2,000 equals 0.45 or 45 percent. This means for every $1 of sales the company makes, $0.45 goes to pay the company's payroll.

References

• Small Business Advocate: The Small Business Dashboard
• Investopedia: Understanding the Income Statement

Resources

• Read this Article in Spanish