What percent should my labor cost be?
Asked by: Mr. Harold Leffler DDS | Last update: February 3, 2026Score: 4.5/5 (4 votes)
Your labor cost percentage should generally be between 20% and 35% of gross sales, but this varies significantly by industry, with retail often lower (15-20%) and restaurants ranging from quick-service (25-30%) to fine dining (35-40%). To calculate it, divide your total labor costs (wages, taxes, benefits) by your total revenue and multiply by 100.
What is an acceptable labor cost percentage?
An acceptable average cost percentage is 25-35% of gross sales. This varies depending on the business, industry, and location. For example, a retail store in a small town may have labor percentages less than 25%, while the manufacturing sector may have labor percentages higher than 35%.
How should I calculate labor cost?
Calculate an employee's labor cost per hour by adding their gross wages to the total cost of related expenses (including annual payroll taxes and annual overhead), then dividing by the number of hours the employee works each year.
Is 20% labor good?
A solid labor cost percentage goal to shoot for in retail (durable or non-durable goods) is 15%-20%, while in the restaurant industry, 30% is considered “safe.” For example, if your total payroll is $20,000 and your total revenue is $100,000, your labor cost percentage is 20%.
How do I price my labor?
Basic Labor Cost Formula
- Sum up all gross pay for all employees.
- Add employer costs including payroll taxes, insurance, benefits, and training.
- Don't forget to estimate absenteeism to reflect sick days and holidays.
- Divide by total hours worked annually for your labor force to determine your average labor cost per hour.
What Labor Cost Percentage Should Be In Your Restaurant
What is a standard labor rate?
A standard labor rate is either a pre-set cost at which labor is compiled in your accounting records, or a pre-set wage rate that billed to customers.
What causes high labor costs?
One of the main reasons behind the increase of labour costs is the decrease in productivity. This might occur due to the increase in idle time and increase in employee turnover or higher attrition rates. Idle time is the non-productive time spent by the employees during working hours.
How to get labor cost percentage?
For labor cost as a percentage of sales, divide the cost by your total sales and then multiply by 100. For example, (150,000 / 1,000,000) x 100 comes to 15%. For labor cost as a percentage of total operating cost, divide your labor cost by your total overhead and multiply by 100.
What is a good cost percentage?
You can calculate food cost percentage for your entire restaurant, a single location, or even a category of item. Most restaurants aim for a range between food cost percentage between 28 and 35%, but this varies depending on a number of factors including the cuisine, pricing, and restaurant location.
What are typical labor costs for a small business?
According to the Bureau of Labor Statistics, the average non-government employee costs your business $44.40 to $46.84 per hour. Given that there are 2,080 working hours in a year, the average employee may cost you roughly $92,000 to $97,000 per year, based on the Bureau of Labor Statistics wage.
What should my labour cost be?
Labour costs should include salaries, wages, and ideally any other payroll costs such as National Insurance and pension contributions. Whatever you include in calculations, keep it consistent — otherwise, you won't be able to compare different periods. Total sales should be self-explanatory.
How do contractors determine labor cost?
Multiply the labor hours by the total hourly wage rate for the specific type of labor involved. This provides the labor cost for each task. Sum up the labor costs for each task to get the total labor cost for the entire project.
Do general contractors make 10% or 30% of jobs?
Average general contractor rates
Most general contractors do not charge an hourly rate. Instead, our research indicates that general contractors charge about 10 to 20% of a project's total construction costs.
How to calculate labor cost for a small business?
Annual labor cost = Gross pay + Additional annual costs
All you need to do now is add it to your gross pay to get the annual labor cost for your employee. You'll need to calculate the annual labor cost for each employee and add those together to understand your total annual labor cost.
What's a good labor cost percentage?
You should aim to keep your labor costs somewhere between 28-33% of your total revenue. While this isn't a steadfast rule – fine-dining establishes, for example, allocate much more to labor costs — spending too much on labor makes it much harder for your restaurant to turn a profit.
How much does a $20 an hour employee cost an employer?
For example, if an employee earns $20/hour and works full time (40 hours a week for 52 weeks), their labor cost is $41,600. Additional payroll taxes (using the rates provided) would sum up to $4,797.36.
How much should construction labor cost?
Estimate the total project cost (materials, permits, subs, etc.) Use historical data or industry benchmarks to determine the average labor cost percentage (typically ranges from 20-40% depending on the project type) Multiply the total cost by the labor percentage to get the estimated labor cost.
Is a 3% cost of living raise good?
A common adjustment is in the 3% to 5% range. Now, that doesn't always mean you shouldn't ask for more, but it's important to keep it reasonable. Two, research the market in multiple ways, including reviewing salary websites that provide broad data.
What percentage should payroll be of sales?
For small to mid-sized businesses across various industries, a general guideline is that payroll should account for 15% to 30% of gross revenue. However, this is a broad range, and the ideal percentage can vary significantly based on factors like: Industry norms.
What helps reduce labor costs?
Improve your efficiency
When you or your team completes tasks faster, this can reduce the time you're at work, which can lower labor costs. It may also mean you can do the same task with fewer people. Review your duties periodically and see if there are ways you can improve your team's efficiency.
How do I charge for labor?
How to Calculate Labor Cost?
- Gross annual wage = annual working hours x gross hourly wage.
- Gross Annual Wage Calculation: 2,080 x $17 = $35,360.
- Actual hours worked = annual hours worked - hours not working.
- Total annual labor cost = gross wage + other annual costs.
How do mechanics know how much to charge customers for labor?
Key Factors That Influence Mechanic Labor Rates
The labor rate you present to customers is the result of evaluating the experience of your techs, the cost of operating your auto shop, and the time it takes to complete repairs. The cost of living in your area also factors into how high or low you set your labor rates.
What is a good effective labor rate?
The goal of this increased efficiency includes achieving an overall effective labor rate of approximately 135%. A good mix of diagnosis, maintenance and repair work will make it easier to achieve this effective labor rate benchmark.