Posted on: May 22, 2025
Know the ATO’s Benchmarks for Better Business Decisions
The Australian Taxation Office (ATO) small business benchmarks serve as more than just a compliance tool—they’re a way to measure your business performance against industry standards.
Whether you’re a tradie, café owner, or retailer, these benchmarks can help you identify inefficiencies, improve profitability, and maintain a good standing with the ATO.
What Are ATO Benchmarks?
ATO benchmarks are updated annually and compare key financial ratios from over two million small businesses across 100-plus industries.
They focus on metrics such as:
- Cost of sales to turnover: How much you spend on goods compared to your revenue
- Total expenses to turnover
- Labour to turnover: The percentage of income spent on wages
- Rent to turnover: Your lease costs as a share of earnings
- Motor vehicle expenses to turnover: Transport costs relative to revenue
- GST-free sales to total sales
- Non-capital purchases to total sales
For example, if your café’s cost of sales is 44% of turnover, you’re within the benchmark range. However, if competitors are closer to 37%, it may be time to review supplier deals or pricing. For tradespeople, these input benchmarks help you estimate income based on labour and materials, enabling more accurate reporting for high-cash industries like construction or road freight.
A relevant case: A West Australian florist faced extra tax liabilities after falling outside benchmark ranges. A stronger focus on compliance and accurate record-keeping would have benefited that SME.
Why Staying Within the Benchmark Matters
The ATO uses benchmarks to flag businesses that may underreport income or overclaim deductions. Falling outside the range doesn’t guarantee trouble; it increases the likelihood of scrutiny and raises suspicions that you may be operating in the shadow economy.
Non-compliance costs Australia $11.2 billion annually in lost tax revenue, with $8.9 billion linked to underreported income and inflated deductions.
How Benchmarks Can Improve Your Business
Benchmarks can also facilitate smarter decision-making. Here’s how they work for you:
Spot inefficiencies
Higher-than-average costs could indicate areas to streamline
Find growth opportunities
Lower costs compared to peers might suggest room for expansion
Ensure compliance
Regularly reviewing your numbers keeps you aligned with tax obligations
Aid business planning and strategy
Offer data to help set realistic goals, identify growth opportunities, and improve efficiencies
Risks
Reduces audit risks and fosters fair competition
The ATO’s business performance check app makes it easy to compare your numbers by automatically calculating key ratios. This official site offers benchmarks from A to Z. If you prefer, calculate ratios manually by dividing expenses like cost of sales by turnover and comparing them with benchmark ranges.
For a more sophisticated approach, check out third-party benchmarking services. They’ll hand you detailed analyses, allowing you to factor in metrics such as employee productivity or stock turnover rates.
Industries the Benchmarks Cover
The benchmarks cover nine broad industries:
- Accommodation and food
- Building and construction trade services
- Education, training, recreation, and support services
- Health care and personal services
- Manufacturing
- Other services
- Professional, scientific and technical services
- Retail trade
- Transport, postal, and warehousing
From these, you’ll find subcategories; for example, pubs, bakeries, and kebab shops each have unique benchmarks under food services.
This detailed approach ensures comparisons are relevant whether you’re running a café or a plumbing business.
Keep in mind that benchmarks typically do not account for unique business models or one-off expenses.
How Your Broker or Adviser Can Support You
As your broker or adviser, we can assist you with benchmarking in the following ways:
Interpreting benchmark data in the context of your SME’s insurance needs, business strategy, risk profile, and risk appetite
Providing guidance on risk management strategies informed by financial benchmarking
Collaborating with accountants to ensure your SME’s financial health aligns with its insurance coverage
By combining insights from ATO benchmarks with tailored insurance solutions, we’ll help ensure your SME is compliant and well-positioned for long-term success.
Get in touch today to learn more about how benchmarks can strengthen your business.
