Does each pound of salary bring in enough revenue?
Revenue compared with the salary cost of the people doing the work. It is a simple, long-standing test of whether a people-based business is pricing and staffing its work to make a sustainable profit.
Get a finance reviewFee revenue ÷ Total salary cost of fee-earning staff (including employer costs)
Around 3x is the traditional benchmark for consultancies and design practices. Below 2.5x usually squeezes profit; above 3.5x is strong.
Total fee revenue divided by the total salary cost of fee-earning staff, including employer costs. It can also be calculated per person, comparing the fees each person generates with their own salary cost.
The traditional rule of thirds says a fee-earner's revenue should cover their salary, their share of overheads and a profit, which implies a multiple of around three. It is a blunt measure, but a useful one: it quickly shows when pricing has not kept up with salary increases, when a team is over-resourced, or when senior staff are doing work that should be delegated. It also gives a simple check on new hires.
Include employer's National Insurance, pension and benefits in salary cost. Decide whether to include directors who do client work, and do so consistently. Use it alongside utilisation and realisation, which explain why the multiple is where it is. Adjust expectations by role: a junior may achieve a higher multiple than a director who spends time winning work and managing the business.
Most owner-managed businesses don't, or they work it out in a way that flatters the result. We'll calculate it from your own numbers and show you what it's telling you.
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