Revenue Per Employee
Your workforce is the lynchpin to your success. However, they are often also the biggest expense.
As such, gaining insights on the productivity and value of your staff – and how that stacks up against your competition – is vital.
In other words, you may know the cost of your talent…but do you know their value? And is that value on target for your industry?
Revenue per employee, by itself, is not a statistic to base decisions. However, it does provide valuable data to help with future planning.
In this guide, we’ll take a deep dive into revenue per employee, including how to calculate it, why tracking it is helpful, and how to improve it.
Let’s dive in.
Table of Contents
- What is Revenue Per Employee?
- How to Calculate Revenue Per Employee
- Why Tracking Revenue Per Employee is Helpful
- What’s a Good Revenue Per Employee?
- What if You Have a Low Revenue Per Employee?
- How to Improve Revenue Per Employee
What is Revenue Per Employee?
Revenue per employee is an equation used by companies to calculate the amount of revenue that each employee earns for the business.
This equation takes the overall revenue from the last twelve months and divides that by the current number of employees. The result is an average value per person which represents part of the total revenue.
This value can be used, in conjunction with additional data, to align the company with competitors and strategize for future growth.
There are additional factors that should be considered when calculating revenue per employee. Turnover can impact the outcome of this calculation since the equation uses the current number of employees.
Obviously turnover affects the number of people working for a company, but it can also negatively impact revenue since turnover is costly. Low revenue resulting from labor force changes can cause inaccurate revenue per employee values.
The age of the company can also play a role in Revenue per employee. Younger companies – we’re looking at you startups – are filling numerous roles with an immature revenue. The revenue per employee in a newer company is going to be disproportionately low.
Finally, consider the industry that you are in when analyzing your revenue per employee.
Different verticals have drastically different benchmarks. Cross-industry comparisons can lead to inaccurate information, confusion, and wasted efforts.
Just be mindful that revenue per employee is different from profit per employee, which accounts for other expenses outside of labor.
How to Calculate Revenue Per Employee
Revenue Per Employee Formula
Total Company Revenue for the last twelve months / Current Number of Full-Time Employees
For example, if you are a SaaS startup on the cusp of raising your Series A, you may have 20 full-time employees and $2,000,000 in revenue from the last twelve months.
To calculate your revenue per employee, you would divide $2,000,000 by 20, resulting in a metric of $100,000 per employee.
Why Tracking Revenue Per Employee is Helpful
In addition to keeping pace with the competition, revenue per employee values are used on a historical basis to make strategic planning decisions.
If your revenue per employee increases over time, but the number of employees on staff stays the same, it could be concluded that your team is working more efficiently.
When your revenue per employee is dropping, you might have too many people causing their value to be diluted. Or maybe you have staff members who are not being used correctly. Both situations are a waste of time and money, but are fixable with some additional analysis
Revenue per employee is a puzzle piece in the overall financial health of your company.
It allows management to see staff for their value, rather than just as a cost. This calculation can align you with other similar companies and help you design a hiring strategy that is best for your business.
What’s a Good Revenue Per Employee?
There’s no silver bullet – revenue per employee is completely industry-dependent.
There is no global standard for a good revenue per employee value across all industries. Also remember, the age and size of your business matter when calculating this value.
According to Klipfolio, a good Revenue per Employee benchmark ranges between $43,000 of revenue per employee for companies making less than $1 million total revenue, to $230,000 per employee for companies earning $50 million or more of total revenue.
It is important to remember that revenue per employee is only valuable when used in conjunction with additional data points. In other words, without context, it is essentially useless.
This is why revenue per employee should be used, in conjunction with other data, or based on historical values when making future planning decisions.
What if You Have a Low Revenue Per Employee?
If you have a low revenue per employee, consider the following questions:
- Do you need a higher revenue per employee?
- Where do you fall compared to others in your industry?
- How old is your business?
- Are you in a heavy growth and hiring period?
- What are your profit margins and profit per employee?
After you’ve performed an in-depth analysis, if you still feel that your revenue per employee is too low, there are steps you can take to improve it, which we will cover next.
How to Improve Revenue Per Employee
There are two ways to improve revenue per employee: increase revenue or decrease staff.
In order to achieve a leaner workforce, consider implementing technology to automate tasks. If you want to keep your employees, you will need to strategize ways to grow your revenue.
Start by assessing your current workforce to ensure that everyone is in a role best suited for their skills and abilities. Misaligned talent can often lead to lower production. Encourage your employees to try new things and push themselves. People who feel supported will achieve far greater results.
Let’s face it – the pandemic has brought about a leaner workforce through both layoffs and The Great Resignation.
This smaller workforce is still producing an incredibly robust output. With the integration of technology, companies can experience growth while reducing staff.
Hiring used to be an indication of growth and success, but companies are currently excelling with fewer and fewer employees. Metrics like revenue per employee are important indicators of the value workers bring to a company. Stacking your roster with a smaller team of talented employees will take you farther than a mass hiring of mediocre staff.
Get Started With Finmark
Whether you need help performing accurate calculations or you want to strategize ways to adjust and increase your revenue per employee – Finmark can help. Thanks to our custom variables and formulas, you can even track revenue per employee as well!