For most rental companies, payroll is the #1 cash expense. When we review rental companies and see that many are now underperforming, we look at all aspects of the rental company and payroll is first. Most times it is too high of a metric these days.
We recommend tracking your payroll expense weekly as a % of your total revenue. Use the following guidelines and advice and you’ll see improvement!
We use fully burdened payroll which includes base pay, overtime, workers comp, vacation pay, sick pay, commissions, bonuses, contract labor, temporary labor, payroll taxes, employee insurance and any other employee benefit expense. Get in the habit of tracking payroll expense to revenue every pay period. Remember, don’t cheat and count “fully burdened” payroll to be precise.
For party/special event rental companies your payroll expense target is 40-45% payroll expense as a percentage of total revenue. For contractor oriented rental companies your total payroll expense should be 20% to 25% of total revenue. If you are a general rental center (homeowner/contractor mix) your payroll should be 25% to 30% of total revenue.
If you are doing better than these benchmarks or metrics, your rental company likely has above average EBITDA/Cash Flow margins. If your payroll expense is above these benchmarks, you are likely struggling. PAYROLL IS THE #1 ENEMY OF PROFITABILITY. IF YOUR PAYROLL EXPENSE IS OUT OF LINE FOR MORE THAN TWO PAY PERIODS, LOOK AT TAKING IMMEDIATE ACTION!!!