What it is
The Labor Efficiency Ratio measures how efficiently your team converts labor spending into gross profit. A result of 2.0 means that for every $1 you spend on labor, your business generates $2 in gross profit.
LER is a core metric in Greg Crabtree’s Simple Numbers, Straight Talk, Big Profits — the methodology Ketchup uses to build every client’s monthly Clarity Report.
How to calculate it
What’s a good LER?
| LER | Status | What it usually means |
|---|---|---|
| Below 1.25 | Watch out | Labor is eating your profit. Something needs to change. |
| 1.25 to 1.75 | Functional | Covering costs, but limited margin for error or growth. |
| Above 2.0 | Strong | Room to hire, invest, or build meaningful cash reserves. |
The part most owners miss
Owner’s pay must be included in labor. If you’re not paying yourself a market-rate salary, your LER is artificially inflated. The number is only useful if it’s honest.
Why it matters more than profit margin (sometimes)
Net profit margin tells you what’s left after everything. LER tells you why it’s there — or why it isn’t. Tracking LER over time surfaces staffing issues, pricing problems, and scope creep faster than a standard P&L will.
See your own LER in your monthly Clarity Report.
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