What Labor Costs
Two Questions This Answers
Is the seller's payroll line plausible?A P&L claiming twelve employees and $300,000 of payroll is claiming $25,000 a head. That is not what a plumbing and HVAC company pays: the industry average is close to $70,000. The gap is either part-time staff, cash, a mistake, or a story, and all four are worth knowing before the LOI.
What is the job you are about to take actually worth? The market-rate salary for the owner's role is the add-back a lender scrutinises hardest, because an owner who pays themselves nothing makes the earnings look bigger than the business is. The honest version of that number is what the role would cost to hire, and the honest way to argue it is against a benchmark rather than a feeling.
The Industries We Have Guides For
Every Industry
Every industry with enough businesses to measure. Sort by pay to see where the skilled labour is, and by staff per business to see what you would be managing.
| Software Publishers | $197,522 | 50.2 | $9.91M | 874,707 |
| Investment Advice | $169,945 | 4.6 | $775k | 110,887 |
| Drugs and Druggists' Sundries Merchant Wholesalers | $146,503 | 31.3 | $4.58M | 311,580 |
| Data Processing, Hosting, and Related Services | $145,906 | 32.5 | $4.74M | 570,188 |
| Other Computer Related Services | $129,719 | 12.6 | $1.63M | 150,617 |
| Custom Computer Programming Services | $127,071 | 15.4 | $1.95M | 1,044,544 |
| Administrative Management and General Management Consulting Services | $123,013 | 8.1 | $993k | 788,736 |
| Offices of Lawyers | $121,210 | 6.5 | $783k | 1,078,148 |
| Offices of Other Holding Companies | $121,085 | 14.1 | $1.71M | 95,001 |
| Computer Systems Design Services | $120,371 | 14.0 | $1.68M | 815,846 |
| Public Relations Agencies | $118,756 | 7.2 | $858k | 62,370 |
| Other Management Consulting Services | $113,195 | 3.5 | $398k | 45,828 |
| Engineering Services | $105,799 | 19.2 | $2.03M | 1,199,635 |
| Advertising Agencies | $105,123 | 13.1 | $1.37M | 195,282 |
| Other Activities Related to Real Estate | $102,784 | 3.4 | $353k | 75,174 |
| Offices of Physicians (except Mental Health Specialists) | $102,237 | 13.1 | $1.34M | 2,582,111 |
| Support Activities for Oil and Gas Operations | $102,068 | 20.7 | $2.11M | 190,723 |
| Other Scientific and Technical Consulting Services | $99,366 | 5.9 | $588k | 160,934 |
| Offices of Certified Public Accountants | $97,895 | 10.3 | $1.01M | 572,944 |
| Computer Facilities Management Services | $97,213 | 16.8 | $1.63M | 115,566 |
| Architectural Services | $96,154 | 8.0 | $774k | 182,082 |
| Other Chemical and Allied Products Merchant Wholesalers | $94,274 | 14.2 | $1.34M | 129,957 |
| Highway, Street, and Bridge Construction | $92,346 | 33.4 | $3.08M | 306,947 |
| Commercial and Institutional Building Construction | $92,192 | 15.9 | $1.46M | 618,523 |
| Other Heavy and Civil Engineering Construction | $90,765 | 17.6 | $1.60M | 82,453 |
What This Number Is Not
It is a wage bill divided by headcount, so it is not a salary. It mixes full-time and part-time staff, it mixes the owner on payroll with the newest hire, and it is an average across an industry that contains both a two-person shop and a company with ninety people. An industry paying $28,000 a head is not paying everyone $28,000; it is an industry with a lot of part-time work in it.
Census payroll also excludes what a sole proprietor DRAWS rather than pays themselves, so the smallest businesses contribute headcount without contributing the owner's own compensation. That pulls the average down in industries full of owner-operators, which is most of the ones a searcher looks at.
So it is a benchmark to check a claim against, not a number to put in a model. It answers "is this plausible", which is the question diligence actually asks.
Census County Business Patterns (2022). What the earnings mean once the payroll is right is in the SDE Calculator, and how many of these businesses exist is in Market Depth.