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  • How to compare your business performance manually

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

    Next step:

    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 = cost of sales÷turnover

    For example:

    Cost of sales = $137,983

    Turnover = $456,790

    ($137,983 divided by $456,790) = 0.30207

    × 100 = 30.21%

    Examples

    The following examples demonstrate 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 1: 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% – 42%

    35% – 41%

    32% – 38%

    Average cost of sales

    38%

    38%

    35%

    Total expenses/turnover

    79% – 88%

    85% – 92%

    87% – 93%

    Average total expenses

    83%

    88%

    90%

    Activity statement

    Key benchmark range

    Annual turnover range

    $65,000 – $250,000

    $250,001 – $600,000

    More than $600,000

    Non-capital purchases/
    total sales

    58% – 71%

    55% – 66%

    51% – 60%

     

    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 divided by $705,200) = 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 38% 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 divided by $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 87% 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

     

    Example 2: Calculating activity statement benchmark ranges

    Sam operates a fruit and vegetable retail business. To calculate his benchmark ranges, he gathers all of his activity statements for the financial year and adds all the figures together to get the annual amounts.

    Sam's activity statement figures for the financial year

    Total sales G1

    $655,000

    Non-capital purchases G11

    $510,900

    GST on purchases 1B

    $9,289

    GST-free sales G3

    $565,523

    GST on sales 1A

    $8,134

    Total salary and wages W1

    $44,156

    Turnover (excludes GST)

    $646,866

    Fruit and vegetable retailing benchmark

    The activity statement key benchmark ranges for fruit and vegetable retailers are non-capital purchases to total sales and GST-free sales to total sales.

     Tax return

    Key benchmark range

    Annual turnover range

    $65,000 – $450,000

    $450,001 – $1,100,000

    More than $1,100,000

    Cost of sales / turnover

    60% – 69%

    66% – 72%

    69% – 75%

    Average cost of sales

    64%

    69%

    72%

    Total expenses/turnover

    81% – 89%

    89% – 93%

    92% – 96%

    Average total expenses

    85%

    90%

    94%

    Activity statement

    Key benchmark range

    Annual turnover range

    $65,000 – $450,000

    $450,001 – $1,100,000

    More than $1,100,000

    Non-capital purchases / total sales

    70% – 83%

    73% – 85%

    78% – 85%

    GST-free sales / total sales

    59%  – 87%

    73% – 93%

    76% – 94%

    Sam calculates his activity statement benchmark ranges using the following calculation methods:

    Calculating non-capital purchases to total sales

    Using his annual activity statement figures, Sam does the following calculations:
    Total sales G1 = $655,000
    Non-capital purchases G11 = $510,900

    Calculation

    Non-capital purchases = $510,900
    Total sales = $655,000
    Non-capital purchases divided by total sales benchmark range

    ($510,900 ÷ $655,000) = 0.78

    × 100 = 78%

    Sam's turnover of $646,866 places his business in the medium turnover range for fruit and vegetable retailing.

    His non-capital purchases to total sales benchmark range is 78%, which is within the benchmark range of 73% to 85% for fruit and vegetable retailing.

    Calculating GST-free sales to total sales

    Using his activity statement figures, Sam does the following calculations:
    Total sales G1 = $655,000
    GST-free sales G3 = $565,523

    Calculation

    GST-free sales = $565,523

    Total sales = $655,000

    ($565,523 divided by $655,000) = 0.86339

    × 100 = 86.34%

    Results

    Sam's turnover of $646,866 places his business in the medium turnover range for fruit and vegetable retailing.

    His GST-free sales to total sales benchmark range is 86.34%, which is within the benchmark range of 73% to 93% for fruit and vegetable retailing.

    End of example

    See also:

    Last modified: 27 Mar 2017QC 47938