What Share of Fee Income Should Go to Salaries?

The honest answer first

There is no percentage that is right for every school. A school that owns its building can afford to spend more of its income on staff than one paying a large rent. A school with small sections spends more per student on teachers than one with full ones. A school that charges higher fees has more room than one that does not. Anyone quoting a single number for every school is guessing.

What you can do is measure your own share accurately, watch which way it is moving, and know what it leaves for the rest of the school.

How to measure it properly

Divide total payroll by net fee income for the same period. Both halves of that sentence matter.

• Total payroll means everything paid to staff: salaries, allowances and bonuses, not just the basic pay
• Net fee income means fees billed after concessions and discounts, not the list fee
• The same period means the month the salary was earned against the month the fees were for, not the day each was paid
• Spread anything paid once a year, such as a bonus or an annual increment's arrears, across the months it relates to

A worked example

Take an example school with net fee income of PKR 2,000,000 a month and a payroll of PKR 1,300,000. Its payroll takes 65% of fee income, leaving PKR 700,000 a month for rent, utilities, maintenance, transport, everything else, and whatever profit there is.

Now suppose enrolment falls by forty students at an average fee of PKR 5,000, and the school keeps the same staff. Fee income drops to PKR 1,800,000 and payroll now takes 72%. Nobody was hired and nobody got a raise, yet the number moved seven points in one year. That is the most common way it rises.

What pushes the share up

Notice that only two of those five are about pay itself. A rising share is more often a sign of an enrolment or fee problem than of overpaid staff.

• Falling enrolment with the same staff, as in the example above
• Sections that run well below capacity, each still needing a teacher
• Concessions, which lower fee income without lowering payroll
• Annual increments granted without a matching fee review
• Hiring ahead of an admission season that does not arrive

Why Edflo flags it where it does

Edflo's owner's dashboard flags the payroll ratio above 60% of net revenue as a warning, and above 75% as critical. Those lines are defaults Edflo chose, the same for every school. They are not a published figure for schools in Pakistan, and a school should not treat them as a target.

The reasoning behind them is arithmetic rather than research. Above 60%, a school with ordinary rent and running costs has little left for maintenance, investment or a bad month. Above 75%, almost any other cost tips it into loss. A school that owns its building may run comfortably above the first line; one in expensive rented premises may need to stay well below it. The flag is a prompt to look, not a verdict.

If yours is high

• Compare enrolment with your break-even number before looking at pay
• Look at section sizes, and whether two small sections could become one
• Check how much pay is lost to absence, and whether cover is being paid twice
• Time increments to follow the fee review, not precede it
• Treat concessions as part of the problem, because they shrink the income side

Where Edflo fits

Salaries post to the school's books as they are paid, so the ratio is worked out from real payroll against real fee income, month by month. The payroll report shows the salary register, cost by department, deductions, security deposits held and the pay lost to absence, and the owner's dashboard shows the payroll ratio beside net profit and break-even enrolment, flagging it past the 60% line.