Glossary · labor-effectiveness-ratio
Labor Effectiveness Ratio (LER)
Revenue per dollar of labor cost. The single best predictor of operator company health.
The Labor Effectiveness Ratio is revenue divided by total labor cost (including taxes, benefits, and contractor spend).
For most operator companies, LER below 2.0 means the business is underwater. LER above 3.0 means the business is healthy. LER above 4.0 usually means there's slack to invest.
Why it matters
Labor is the single largest controllable cost in most operator companies. LER is the lagging indicator that tells you whether your hiring, pricing, and productivity are working together.