# Thread: Formula to calculate staff costs against profit

1. ## Formula to calculate staff costs against profit

Good Afternoon,

A client recently asked me if I knew the formula to calculate how much turnover can be allocated to staff costs (salary, UIF etc) to still make a profit and what the percentage of these costs are?

I hope this makes sense since it's a bit of hard question to explain. Help would be much appreciated :-)

2. This is an even harder question to answer. Staff costs depend on many factors and is not as simple as allocating a percentage to it. You may do calculations to work out what would be your ideal % that you would like to target to maximise your profits vs. quality vs. service, etc...

In essence the costs are largely dependant on the industry you operate in. Some are more labour intensive than others and therefore use more staff than others. Some use highly skilled staff that cost more while others dont. Your business maybe a high turnover low profit margin business vs. a low turnover high profit margin business and the list goes on.

My advice would be to determine the best % for your individual business and work towards achieving that while not compromising on other aspects! (especially if this is a small business)

Hope this helps

3. Companies nowadays work on a Cost to Company - this includes everything that the staff member would cost them. If you have this figure and your turnover you can get a percentage very easily.

4. I use staff cost as another product cost in my business. This makes it easier to identify when doing my costing breakdown. Every industry has its very own costing model, and you have work out what fits in your industry. Once you have these numbers, then it is much easier to work out where you highest expenses are, and gives you an idea of how to control the expenses. Sometime an extra employee may be required who is a foreman to co-ordinate the employees to work as a team and become more efficient, but this is always industry related.

5. Usually salaries/wages etc are a fixed cost except where overtime is added so you should calculate it the same as rent, insurance and other fixed monthly outputs.
Calculating a fixed cost against a variable such as sales or production is nigh impossible so I would say add all your fixed costs into a basket and after you exceed that figure with profit on turnover during a month/period the rest is money in the bank and at the end of the month/period you can calculate it as a % but guaranteed it will vary from month to month/period.