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  • How to compare your business performance manually

    The basic formula for calculating each benchmark figure is:

    relevant benchmark figure ÷ turnover × 100 = benchmark percentage

    On this page:

    Calculate cost of sales to turnover

    To calculate the key benchmark cost of sales to turnover, divide the cost of your sales by your turnover and multiply by 100.

    Example

    This year the cost of sales for Steff's business was $137,983 while her turnover was $456,790.

    She would calculate the cost of sales/turnover benchmark percentage as:

    cost of sales ÷ turnover × 100

    $137,983 ÷ $456,790 = 0.30207

    0.30207 × 100 = 30.21%

    End of example

    Compare your performance

    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.

    Definitions of terms used in this example:

    • 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. She enters the following figures on her tax return.

    Total business income

    $705,200

    Cost of sales

    $253,300

    Salary, wages and superannuation

    $189,400

    Payments to associated parties

    (This is 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

    78% − 87%

    84% − 92%

    87% − 94%

    Average total expenses

    83%

    88%

    91%

    Elizabeth calculates her key benchmark ranges as follows:

    1. Calculating cost of sales to turnover

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

    Turnover is $705,200

    Cost of sales is $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 (more than $600,000) for coffee shops.

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

    2. Calculating total expenses-to-turnover

    'Total expenses' is the total expenses reported on the tax return minus payments to associated parties. In Elizabeth's case her wages and superannuation payment of $50,000 is counted as a payment to an associated party.

    Elizabeth does the following calculations:

    Turnover is $705,200

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

    $625,500 ÷ $705,200 = 0.88698

    0.88698 × 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 figure is 88.70%. This is within the benchmark range of 87% to 94% 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

    Next step:

    See also:

    Last modified: 29 Apr 2021QC 47938