How to compare your business performance manually

Calculating your benchmark figures

The basic formula for calculating each benchmark figure is:

relevant benchmark figure ÷ turnover × 100 = benchmark percentage

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: calculating the cost of sales to turnover

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 to turnover benchmark percentage as:

cost of sales ÷ turnover × 100

$137,983 ÷ $456,790 = 0.30207

0.30207 × 100 = 30.21%

Steff's cost of sales to turnover is 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 key 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.

Key benchmarks
Annual turnover range	$65,000 – $250,000	$250,001 – $600,000	More than $600,000
'Cost of sales' divided by 'Annual turnover'	34% to 42%	35% to 40%	33% to 38%
Average cost of sales	38%	37%	35%
'Total expenses' divided by 'Annual turnover'	74% to 86%	81% to 90%	85% to 92%
Average total expenses	80%	86%	89%

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 33% to 38% 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 85% to 92% for coffee shops.

Result

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