What is Revenue per Employee?
Would you like to be able to evaluate your company's performance even better? Use a metric such as revenue per employee to do so.
Revenue per Employee (RPE) is an average, expressing the value of a company's revenue per employee. We can use it to see how much a company has grown in percentage terms year-on-year (YoY), to compare it with competitors in the same industry, and by analyzing various business aspects in parallel, to assess the efficiency and productivity of a company's operations. It is good practice to regularly review revenue per employee because it allows you to notice changes in productivity quickly.
For clarity, let's also distinguish between „revenue per employee” and „profit per employee”. Revenue means the total income received from the sale of goods or services. Profit is the income that remains after all operating expenses are taken into account.
The revenue per employee formula is quite simple. We calculate revenue per employee by dividing a company's total revenue for the last twelve months (Last Twelve Months' Revenue, or LTM Revenue) by the current number of its full-time equivalent employees (FTE).
To calculate the value of revenue per employee, you must therefore:
find out the amount of total revenue generated by the company in a given year;
figure out the total number of full-time, full-time employees.
The above findings link revenue per employee to other business metrics. Indeed, many factors affect the final number of employees included in the calculation, such as employee turnover. The age of the company and the stage of development it is at will also be an important business consideration. A young company generates low revenue and incurs high operating costs, so a lower revenue per employee will be natural. Also, the type of industry in which the company operates will reflect on the value of the revenue ratio, as different industries have specific workforce needs.
Revenue per employee is an average that is affected by many external and internal factors. Therefore, it is impossible to set a specific value that will satisfy different companies. You can only compare revenue values year to year. The higher the ratios, the higher the productivity and, therefore, the profits.
You can compare the value of your company's revenue per employee with your competitors using information contained in official financial reports (or annual reports). If you notice your revenue per employee is low compared to your competitors, this could be a sign of some deeper problem. It could be about overworked employees and low productivity, mistakes in the recruitment and hiring process, or team issues that cause high employee turnover. In this situation, the HR department should take up the topic, analyze it more deeply and implement the necessary changes in its practices.
If you think that the revenue per employee in your company is too low, try the following ways to improve the value of this indicator.
Bet on your employees' professional development – provide them with access to advanced professional tools and training (e.g. product training, sales training, soft skills development, etc.). Competent employees work more efficiently and are more productive.
Hire managers with the right skills – choose managers with leadership and management skills. Don't base your decision on seniority or education. Only a manager with solid authority, who knows how to motivate the team to achieve and maintain high performance over the long term, will impact revenue.
Automate the work – simplify the operations of each department, generating time and financial savings. By postponing the need to increase your workforce, you reduce the total number of employees you will eventually include in the calculation of the revenue ratio.
Manage employee engagement efficiently – align responsibilities with employees' skills to raise their engagement and satisfaction level, focus on employees' strengths and recognize their achievements, thereby eliminating the phantom of turnover. Don't treat employees as a corporate expense but as a valuable resource.
The HR department is in charge of effectively managing human capital so that it generates the highest possible profits. Measuring a metric like revenue per employee allows it to gain essential data about how the team performs.
With this information, you can identify problems and areas for improvement. The steps for improvement can include:
implementing changes in the organizational structure of the company;
implementing new professional development plans;
more effective monitoring of stress levels in the team and avoiding situations of work overload or professional burnout;
modifying or expanding the offer of employee benefits;
improving the recruitment, hiring and onboarding processes;
reducing or increasing the number of employees.
Revenue per employee is a helpful indicator that enables a better understanding of what influences the team's effectiveness. Although it does not tell everything about a company, by regularly monitoring its value concerning other business metrics, you can get a whole picture of performance and plan actions that will improve your company's financial results.