--- title: Is Your Payroll Too Big—or Are Your Prices Too Small? description: Useful payroll ranges for trades, shops, gyms, and clinics—and how to tell whether you have a staffing problem, a scheduling problem, or a pricing problem. category: Employees author: Shawn Duncan published: 2026-09-13 updated: 2026-09-13 canonical: https://businesscoachshawn.com/blog/is-your-payroll-too-big-or-are-your-prices-too-small site: Shawn Duncan Business Advisory --- # Is Your Payroll Too Big—or Are Your Prices Too Small? Useful payroll ranges for trades, shops, gyms, and clinics—and how to tell whether you have a staffing problem, a scheduling problem, or a pricing problem. ## Key takeaways - Measure fully loaded payroll, including a fair wage for the work you do—not just employee paychecks. - Use business-type ranges as budgeting guardrails, not universal rules. Your materials, staffing model, and pricing change the answer. - Before cutting people, separate rising labor costs from falling revenue. They need different fixes. - Set a payroll dollar budget against realistic revenue, then review it weekly. Your payroll can be perfectly reasonable and still be unaffordable. You might have the right people, paying rates the local market demands, doing necessary work. But if your prices or sales volume cannot support them, being reasonable won’t cover Friday’s direct deposit. So what percentage of revenue should payroll be? There are useful ranges. There is no magic number that makes a plumbing company, retail shop, and physiotherapy clinic equally healthy. ## Start with the whole damn payroll Payroll percentage is the share of revenue consumed by employing people. It is also called labor percentage, although businesses don’t always include the same costs. For an owner-level comparison, use fully loaded payroll: - Gross wages, salaries, commissions, bonuses, and overtime. - Employer payroll taxes, workers’ compensation, and employer-paid benefits. - Paid leave, without counting it twice if it is already included in wages. - A market-rate wage for the operating job you perform, if it isn’t already on payroll. Owner distributions are not wages. But your work isn’t free just because your accountant pays you differently. A business that only works because its owner works unpaid has a math problem wearing work boots. Keep direct labor and administrative labor separate in your books. Direct labor helps calculate gross margin. Total payroll tells you what the entire team costs. **Fully loaded payroll ÷ revenue × 100 = payroll percentage.** Use the same period for both. Exclude sales tax collected. Don’t compare a three-paycheck month against an ordinary month without adjusting for payroll timing. ## Use these ranges as guardrails, not commandments These are starting ranges for budgeting, not measured industry averages or promises of profitability. They assume fully loaded employee costs and a fair wage for a working owner. Your service mix can move the answer substantially. - **Trades and home services: 25%–40%.** Installation work with substantial equipment and materials may sit lower. Labor-heavy service and repair may sit higher. - **Retail shops: 12%–22%.** Merchandise consumes a large share of revenue, leaving less room for payroll. Service-heavy retail needs a different model. - **Automotive repair shops: 25%–40%.** Parts sales affect the percentage. Compare technician labor separately from advisors and administration. - **Gyms and fitness studios: 25%–45%.** An access-focused gym and a coached studio have very different staffing requirements. Empty classes still cost money. - **Clinics: 40%–55%.** This assumes provider compensation is included. A clinic excluding its working owner’s clinical pay can look artificially lean. Use the lower end to test a lean staffing model and the upper end to pressure-test affordability. Neither is automatically right. If contractors deliver your core service, include their cost in a separate total-labor comparison. Moving instructors or technicians off payroll doesn’t magically make their work cost nothing. ## Make your business earn its own target Suppose your service business produces **$120,000 in monthly revenue**. These are illustrative numbers: - Employee gross pay: $34,000. - Employer taxes, insurance, and benefits: $8,000. - Replacement wage for your operating role: $6,000. - Total loaded payroll: **$48,000, or 40% of revenue.** Now build the rest of the budget. Assume nonlabor direct costs consume 25% of revenue, other operating expenses consume 25%, and your target net profit before income tax is 15%. That leaves **35% for total payroll**: 100% minus 25%, minus 25%, minus 15%. At $120,000 in revenue, that is **$42,000**. Your current structure is $6,000 over budget. This isn’t proof you should fire someone. It is proof that the current combination of revenue, costs, and profit expectations doesn’t fit. With payroll fixed at $48,000, reaching 35% requires about **$137,143 in monthly revenue**. That only works if the extra sales don’t require more labor. Recalculate the full budget before celebrating; some other costs will rise too. ## Find out which side of the fraction moved A rising percentage can describe two completely different problems. Example one: payroll stays at $48,000 while revenue falls from $120,000 to $108,000. Payroll percentage jumps from 40% to **44.4%**. Nobody got a raise. Sales fell. Example two: revenue stays at $120,000 while payroll rises to $54,000. Payroll percentage becomes **45%**. Now investigate overtime, added positions, wage changes, and paid hours. Pull the last eight weeks and compare: - Revenue earned, not just cash collected. - Loaded labor cost and total paid hours. - Overtime hours and completed jobs, appointments, or transactions. - Average ticket and revenue per paid hour. Revenue per paid hour is especially useful within your own business. If 1,000 paid hours produce $120,000, that’s $120 per hour. If the same hours later produce $108,000, find the missing output or selling price before blaming wage rates. ## Match the fix to the problem If paid hours are climbing, inspect schedules, callbacks, travel, and rework. Tighten SOPs where mistakes repeatedly consume labor. Don’t solve poor dispatching by demanding technicians drive faster. If volume is down, match coverage to actual demand. Protect safety, service standards, and legally required staffing. Cutting your best coverage can damage reviews and make the sales problem worse. If the team is productive but revenue per job is weak, inspect pricing and discounts. A **5% price increase on $120,000 of unchanged sales volume adds $6,000 in revenue**. That is an illustration, not a guarantee that every customer stays. If overtime is chronic, compare its loaded cost with adding capacity. Cheap-looking understaffing can become expensive turnover. ## Fix the measurement first Monday morning, get payroll reports, revenue, and paid hours for the last eight weeks. Add missing employment costs and your replacement wage. Set a payroll dollar budget against realistic revenue. Pick one leak: overtime, empty appointment slots, callbacks, or underpriced work. Assign one person to fix it and review the numbers next Monday. **Don’t start by cutting people. Start by proving what is actually too expensive.** --- Source: https://businesscoachshawn.com/blog/is-your-payroll-too-big-or-are-your-prices-too-small Author: Shawn Duncan, business advisor to established small businesses (Austin, Texas). Advisory: https://businesscoachshawn.com/ · Marketing: https://businesscoachshawn.com/marketing · Systems: https://businesscoachshawn.com/systems