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  • How to compare your business performance manually

    The basic formula is benchmark figure ÷ turnover × 100 = benchmark percentage.

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    The benchmark formula

    Cost of sales to turnover

    To calculate cost of sales to turnover as the key benchmark range, divide cost of sales by turnover and multiply by 100:

    • Cost of sales ÷ turnover × 100

    Example: Benchmark formula

    Cost of sales = $137,983

    Turnover = $456,790

    • Using formula: Cost of sales ÷ turnover × 100
    • $137,983 ÷ $456,790 = 0.30207
    • 0.30207 × 100 = 30.21%
    End of example

    Example

    The following example demonstrates how to:

    • compare your business performance using the benchmarks
    • confirm that you are performing within the benchmark range
    • clarify what it may mean if your business is outside a benchmark range.

    If you notice you've made a mistake as you compare your business performance, you should make a voluntary disclosure (if necessary).

    Definitions of terms you will come across:

    • Associated parties – people and entities closely associated with you, such as relatives, partners in a partnership, directors of companies or closely connected companies or trusts.
    • Cost of sales (excludes labour) – the cost of anything produced, manufactured, acquired or purchased, for either    
      • manufacture
      • sale or exchange in deriving the gross proceeds
      • earnings of the business.
       
    • Labour – salary and wage payments, including contractor payments (amounts exclude GST), it does not include payments to associated parties for example, labour provided by a business owner or business partner.

    Example: Calculating income tax benchmark ranges

    Elizabeth operates a coffee shop.

    Elizabeth's tax return figures

    Total business income

    $705,200

    Cost of sales

    $253,300

    Salary, wages and superannuation

    $189,400

    Payments to associated parties

    (Elizabeth's wages and superannuation)

    $50,000

    Rent

    $85,800

    Other expenses

    $97,000

    Coffee shops benchmark

    The key benchmark range for coffee shops is cost of sales to turnover.

    Tax return

    Key benchmark range

    Annual turnover range

    $65,000 – $250,000

    $250,001 – $600,000

    More than $600,000

    Cost of sales / turnover

    35% − 41%

    34% − 40%

    32% − 37%

    Average cost of sales

    38%

    37%

    35%

    Total expenses / turnover

    77% − 87%

    84% − 92%

    87% − 93%

    Average total expenses

    82%

    88%

    90%

    Elizabeth calculates her key benchmark ranges using the following calculation methods:

    Calculating cost of sales to turnover

    Using her tax return figures, Elizabeth does the following calculations:

    Turnover = $705,200

    Cost of sales = $253,300

    • $253,300 ÷ $705,200 = 0.35918
    • 0.35918 × 100 = 35.92%

    Elizabeth's turnover of $705,200 places her business in the highest turnover range for coffee shops.

    Her cost of sales to turnover benchmark range is 35.92%, which is within the benchmark range of 32% to 37% for coffee shops.

    Calculating total expenses-to-turnover

    Using her tax return figures, Elizabeth does the following calculations:

    Turnover = $705,200

    Total expenses $675,500 − $50,000 = $625,500

    Total expenses is the total expenses reported on the tax return, minus payments to associated parties

    Calculation

    Total expenses = $625,500

    Turnover = $705,200

    $625,500 ÷ $705,200 = 0.88698

    Total expenses to turnover benchmark range × 100 = 88.70%

    Elizabeth's turnover of $705,200 places her business in the highest turnover range for coffee shops.

    Her total expenses to turnover benchmark range is 88.70%, which is within the benchmark range of 88% to 93% for coffee shops.

    Result

    Based on her calculations, Elizabeth is satisfied that her record keeping and business practices are in good order.

    End of example

    See also:

    Last modified: 11 Mar 2020QC 47938