Katherine, I'm really curious how you came to realize you needed to calculate a payroll ratio finally? Sound like lightening bolt?
Asking both because I spend way too much timing thinking about is how little good finance info there is out there (a couple mediocre books by white men...), and I'm curious where and how folks get basics when they get them; comp load is one so many people never look at till someone (me) tells them too, and it's a source of so much strife. I love seeing all your math! :)
Such a great question. Honestly it was less of a lightning bolt and more of an accumulation of data over time. Some Google searches ("payroll calculator tool," "how do I know if I can afford to hire someone," etc.). Probably as a result of those searches I stumbled on some metric that benchmarked what percent of your revenue payroll should be by industry. Worth noting Mike Michaelowicz and the Profit First system is probably the closest single reference I had to thinking about payroll as a percentage or ratio, but there needs to be more out there and I like your lens of looking at businesses as a system for caring for ourselves and our employees... so if you're thinking about writing a book, please do. :) (Also I'm not sure my spreadsheet that calculates total payroll cost including benefits is as accurate as it could be — that's another tool that's missing from the market of that could be made by a real person instead of a software company trying to sell you payroll services.)
One thing you may want to look at is removing benefits from your comp ratios; we'd usually benchmark *unburdened comp* -- meaning, exclude benefits and employer payroll taxes, anything but gross pay. Helps keep that number clear, since benefits aren't as consistent/aren't related to team effectiveness or utilization.
( I have been grumbling about not wanting to be the one to write an *actually useful and not by an obnoxious white man* biz finance book for years*, but I wrote most of the bones of one last year, so yes, working on it 🤪 In the meantime, I am almost finished with a Zine on profit!
As for books out there ...I don't recommend Profit First to anyone, that dumb book has wrought so much havoc for often being the only finance book anyone reads, but there is one book that's helpful that you might track down, Simple Numbers by Greg Crabtree. He's got a hokey, cringy uncle vibe, and it's not as accessible as PF (what is though!?!?), but he's got a good chunk on salary caps and how to calculate and I agree with a lot of the principles.)
Once again thank you for sharing so openly. It really does make a difference to those of us who are facing similar challenges. I’m in the UK but things are exactly the same here. You don’t need a business licence to open a retail shop here. You don’t need any official permissions, just sign a contract with your private landlord that you’ll pay the money every month!
Thank you for this— I love that you go through all the calculations. I truly (and selfishly) hope that talking through these numbers is more fun, and feels more worth your effort, for you than teaching a class on plants. 😂
Katherine, I'm really curious how you came to realize you needed to calculate a payroll ratio finally? Sound like lightening bolt?
Asking both because I spend way too much timing thinking about is how little good finance info there is out there (a couple mediocre books by white men...), and I'm curious where and how folks get basics when they get them; comp load is one so many people never look at till someone (me) tells them too, and it's a source of so much strife. I love seeing all your math! :)
Such a great question. Honestly it was less of a lightning bolt and more of an accumulation of data over time. Some Google searches ("payroll calculator tool," "how do I know if I can afford to hire someone," etc.). Probably as a result of those searches I stumbled on some metric that benchmarked what percent of your revenue payroll should be by industry. Worth noting Mike Michaelowicz and the Profit First system is probably the closest single reference I had to thinking about payroll as a percentage or ratio, but there needs to be more out there and I like your lens of looking at businesses as a system for caring for ourselves and our employees... so if you're thinking about writing a book, please do. :) (Also I'm not sure my spreadsheet that calculates total payroll cost including benefits is as accurate as it could be — that's another tool that's missing from the market of that could be made by a real person instead of a software company trying to sell you payroll services.)
Cool, that all makes sense! Helpful to hear.
One thing you may want to look at is removing benefits from your comp ratios; we'd usually benchmark *unburdened comp* -- meaning, exclude benefits and employer payroll taxes, anything but gross pay. Helps keep that number clear, since benefits aren't as consistent/aren't related to team effectiveness or utilization.
( I have been grumbling about not wanting to be the one to write an *actually useful and not by an obnoxious white man* biz finance book for years*, but I wrote most of the bones of one last year, so yes, working on it 🤪 In the meantime, I am almost finished with a Zine on profit!
As for books out there ...I don't recommend Profit First to anyone, that dumb book has wrought so much havoc for often being the only finance book anyone reads, but there is one book that's helpful that you might track down, Simple Numbers by Greg Crabtree. He's got a hokey, cringy uncle vibe, and it's not as accessible as PF (what is though!?!?), but he's got a good chunk on salary caps and how to calculate and I agree with a lot of the principles.)
Once again thank you for sharing so openly. It really does make a difference to those of us who are facing similar challenges. I’m in the UK but things are exactly the same here. You don’t need a business licence to open a retail shop here. You don’t need any official permissions, just sign a contract with your private landlord that you’ll pay the money every month!
Thank you for this— I love that you go through all the calculations. I truly (and selfishly) hope that talking through these numbers is more fun, and feels more worth your effort, for you than teaching a class on plants. 😂