Labor Efficiency Ratio Calculator | 20-20 Accounting Solutions

Labor Efficiency Ratio Calculator

See how efficiently your payroll dollars convert into gross profit.

Your Practice Numbers

Annual figures

Revenue & Direct Costs

Annual Collections (actual cash collected, not billed)

Direct Patient-Care Costs (orthotics, grafts, etc.)

Gross Profit$2,700,000

Provider Labor

Owner DPM — Market-Rate Salary (what you’d pay to replace your clinical work)

Use full market-rate clinical comp — not the S-corp reasonable-comp salary, which is usually set lower for payroll-tax efficiency. Distributions stay out of labor entirely.

Associate / Provider Salaries (DPMs, NPs, PAs)

Support Labor

Clinical Support (MAs, nurses, X-ray techs)

Front Office (reception, scheduling)

In-House Billing / Admin / Management (W-2 staff only)

Payroll Burden

Taxes & Benefits Burden (applied to all W-2 wages above — typically 12–20%)

Contracted Labor no payroll burden

Outsourced Billing / RCM (vendor fee — counts as labor, but no taxes/benefits added)

Most offices that outsource billing pay roughly 4–8% of collections. Including it here keeps outsourced practices comparable to in-house ones.

Total Loaded Labor Cost$1,667,500

Optional — for Pretax Profit

Non-Labor Overhead (rent, marketing, software, supplies, insurance, professional fees)

Your Results

Live

1.62:1

Labor Efficiency Ratio

Below target

What this means

Gross ProfitCollections − direct costs

$2,700,000

Total Loaded Labor CostW-2 wages + burden + contracted

$1,667,500

Provider LeverageSupport $ per $1 of provider $

$1.42

Pretax ProfitAfter labor & overhead

$582,50019.4% of collections

Podiatry Benchmarks

Reference

LER Target (Podiatry)

2.0 – 2.5

Pretax Profit

10 – 20%

Owner DPM Comp

Market rate

Days in A/R

< 35 – 40

Cash Reserve

2 – 3 mo.

When LER slips below target, the cause is usually one of five things: underpricing, excess staffing, provider underutilization, scheduling inefficiency, or billing & collection gaps — rarely a lack of patients. In podiatry groups, LER often starts declining 6–12 months before profitability does, making it a valuable early-warning metric.