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Last updated 13 March 2024

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

The following example demonstrates how to:

• 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
• 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 \$253,300 \$189,400 \$50,000 \$85,800 \$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.

End of example

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