Benchmark: Unburdened Compensation Load

Today’s post begins a multi-part series. From time to time I’ll publish a single benchmark that might be useful to you. My work life is focused on helping entrepreneurial experts make better business decisions. This morning I did an AdWeek webinar for 1,084 agency principals and we walked through a mass of KPIs, but I’ve found it easier and more sticky if I just talk about one at a time. I’ll intersperse these posts among the other things I’ll write about.

Today let’s focus on how much of your total income is going to employees, including yourself. Here’s the metric:

You should spend no more than 45% of your fee base on unburdened compensation for your staff, including yourself.

Now the caveats so that you can unpack this:

• Your “fee base” is what’s left after COGS (cost of goods sold). These are expenses a) specifically tied to projects that b) are purchased on the outside. That does not include employees–but COGS does include outside contractors and other expenses like that.
• Your “unburdened compensation” is the compensation without the taxes, benefits, or bonuses. You add up the straight salary (e.g., $120,000 + $85,000, etc.) of everybody working for you. It’s calculated this way because I have clients in 30 countries and their tax/benefit structures are different, and I need something that will work around the world.
• This is “including yourself” but at a normalized comp level. So if you are underpaying yourself, you have to normalize that number before you run the calculation.

How did you come out? Before you take any drastic steps, though, please read this article on how this gets messed up at firms with a utilization/realization problem. If this is out of whack at your firm, it’s more likely that you have an income problem than an expense problem.