Margin / base / 1 to 3 months
Total labor (payroll + contractors), or payroll alone, is consuming too large a share of current revenue. S14 fires on that present share (payroll alone above its level, or total labor above its higher line). On the books-derived path it then enriches the fired finding with trajectory analysis (hiring freeze impact, payroll cliff timing, revenue-per-FTE trajectory), so the memo shows where labor is heading as well as where it stands; on the founder-supplied direct path (Track D), those trajectory enrichments are absent and only the labor-share and source metrics are emitted. The trajectory analysis contextualizes a fired signal; it is not what triggers it. For the lower-threshold point-in-time read see S36, and for the forward payroll-cliff projection as its own trigger see S39.
Top-performing services firms, per SPI Research, keep total labor to a moderate share of revenue, leaving room for other costs and profit. As labor climbs toward consuming nearly all of revenue, only a small sliver of each revenue dollar remains for rent, tools, taxes, and margin, and past a high level the business is effectively operating without a cushion. Labor is usually the largest and least flexible cost a services business carries, so an overhang here constrains every other choice.
The team has grown but revenue per person has not kept up. Payroll is the dominant line item and it feels immovable. There is a persistent sense that the business is working hard mainly to fund its own headcount.
Measure revenue per person and track whether it is rising or falling as you add people. Match staffing to a realistic view of billable demand rather than to peak optimism, and be honest about roles that are not carrying their cost. Before the next hire, confirm the revenue that will support it, and review whether contractor spend can be trimmed or brought in-house more efficiently.
Harbor Analytics, an illustrative agency, brings in about 400,000 of monthly revenue and pays about 328,000 of it out in combined payroll and contractor cost.
Most of every revenue dollar is going to people, leaving only a thin remainder for rent, software, taxes, and any profit. As the team has grown, revenue per person has not kept pace, so the business is essentially working to fund its own headcount. There is no meaningful cushion left if revenue dips even slightly.
Harbor concludes its labor base has outgrown its revenue and must lift revenue per person or right-size staffing to demand.
Exact thresholds, formulas, and severity bands are omitted from this public view. The full methodology, with every figure, is available in the authenticated app.
Operating leverage is negative — labor is scaling faster than revenue. A hiring freeze would extend runway by ~[redacted] months. Contractor optimization could save ~[redacted]/mo.
The exact thresholds, the formula, and your own figures are in the authenticated app. See it against a real, simulated dataset for Integra Executive Services, our public demo company, or connect your own QuickBooks Online account.