What Is Revenue per Employee?
Revenue per employee—calculated as a company's total revenue divided by its current number of employees—is an important ratio that roughly measures how much money each employee generates for the firm. The revenue-per-employee ratio is most useful when looking at historical changes in a company's own ratio or when comparing it against that of other companies in the same industry as part of a fundamental analysis.
Key Takeaways
- Revenue per employee is an important ratio that roughly measures how much money each employee generates for the company.
- To calculate a company's revenue per employee, divide the company's total revenue by its current number of employees.
- Ideally, a company wants the highest ratio of revenue per employee possible because a higher ratio indicates greater productivity, which often translates to more profits for the company.
- For the revenue-per-employee ratio to be useful, it should be used when comparing and analyzing companies in the same industry.
- Other factors that can impact the revenue-per-employee ratio include employee turnover and the age of the company.
How Revenue per Employee Works
Revenue per employee is a meaningful analytical tool because it measures how efficiently a particular firm utilizes its employees. Ideally, a company wants the highest ratio of revenue per employee possible because a higher ratio indicates greater productivity. Revenue per employee also suggests that a company is using its resources—in this case, its investment in human capital—wisely by developing workers who are very productive. Companies with high revenue-per-employee ratios are often profitable.
Some analysts use a variation of the revenue per employee ratio. In this ratio, they replace revenue with net income. A ratio similar to revenue per employee is sales per employee, which is calculated by dividing a company's annual sales by its total employees.
Factors Affecting the Ratio of Revenue per Employee
The Company's Industry
Because labor demand varies from industry to industry, it is most meaningful to compare a business's revenue per employee with that of other companies in its industry—especially with its direct competitors. This ratio has little value out of context.
Traditional banking, for example, requires many employees to staff brick-and-mortar locations and answer customer questions. This contrasts with online banks, which conduct business on the Internet and have no need to staff physical locations with employees. Thus, a banker would want to compare its company's revenue per employee ratio with that of similar types of banking institutions. Companies in labor-intensive industries like agriculture and hospitality typically have lower revenue-per-employee ratios than companies that require less labor.
Employee Turnover
Revenue per employee is affected by a company’s employee turnover rate, where turnover is defined as the percentage of the total workforce that leaves voluntarily (or is fired) each year and must be replaced. Turnover is different from employee attrition, which refers to workers who retire or whose jobs are eliminated because of downsizing.
Employee turnover typically requires a company to interview, hire, and train new workers. During these onboarding processes, companies frequently become less productive because existing workers may need to mentor a new employee and share part of the workload. The company's expenses also often grow during the onboarding process as they bring in outside experts, pay for special courses or training seminars, and pay employees to spend more time at work even though they are being less productive.
The Age of the Company
Startup companies that are hiring to fill key positions might still have relatively small revenue. Such firms tend to have lower revenue-per-employee ratios than more established companies that can leverage hiring for those same key positions over a larger revenue base.
If a growing company needs to take on more help, management would ideally be able to grow its revenue at a faster rate than its labor costs, which often is reflected in steadily rising revenue-per-employee ratios. Ultimately, increased efficiency in managing its revenue per employee should lead to a company's expanding margins and improved profitability.
Special Considerations
Investors interested in calculating a company's revenue per employee can find the required revenue and employee numbers in the company's financial statements and annual reports. The ratio itself is easy to calculate and comparing revenue per employee between different companies is a fairly straightforward process. In general, companies with higher revenue-per-employee numbers operate streamlined and efficient organizations, have lower overhead costs, and are more productive than their competitors.
There are several other ratios an investor should also consider when analyzing a company as a potential investment. Investors should review a company's profitability ratios, such as profit margin, return on assets (ROA), and return on equity (ROE).
FAQs
Key Takeaways. Revenue per employee is an important ratio that roughly measures how much money each employee generates for the company. To calculate a company's revenue per employee, divide the company's total revenue by its current number of employees.
How do you increase revenue per employee? ›
By optimizing resources, investing in employee training and development, and implementing automation and technology, businesses can increase their revenue per employee and ultimately drive growth and profitability.
What is the benchmark for revenue per employee? ›
Some suggest that a good revenue per employee benchmark ranges from $43,000 per employee for companies making $1,000,000 or less to $230,000 for companies making $50,000,000 or more.
Is revenue per employee a basic measure of human capital? ›
RPE measures the efficiency of a company's revenue model and how efficiently the company is using its human resources. The higher the ratio, the higher the productivity. It also suggests that companies with high RPE ratios are using their human capital wisely by developing workers who are very productive.
What is the difference between RPE and Hcva? ›
HCVA is quite distinct from the Revenue Per Employee (RPE) metric, which is simply the amount of revenue for the organization divided by the number of full-time equivalent employees (FTEs). In contrast, HCVA measures the average profitability an employee contributes to the organization versus the average revenue.
What drives revenue per employee? ›
The formula uses two figures: the company's total revenue and the number of employees. In other words, a change in either of these will affect the RPE: An increase in the total revenue increases the RPE. An increase in the number of employees decreases the RPE.
Why is revenue per employee important? ›
Revenue per employee is an efficiency ratio used to determine the revenue generated per individual working at a company. The revenue per employee ratio is important for determining the efficiency and productivity of the average employee of a company.
How do you analyze revenue per employee? ›
To calculate a company's revenue per employee, divide the company's total revenue by its current number of employees. Ideally, a company wants the highest ratio of revenue per employee possible because a higher ratio indicates greater productivity, which often translates to more profits for the company.
What percentage of revenue should be paid to employees? ›
While there is no universally defined percentage for a "good" Payroll to Revenue Ratio, a commonly cited guideline is that labor costs should ideally account for 15-30% of total revenue. This range provides a general framework for assessing the proportion of revenue allocated to payroll expenses.
Who has the highest revenue per employee? ›
An Indian company, Rajesh Exports, has the highest revenue per employee in the world, at $292 billion. This is 2.2 times as much per employee as second-placed VICI Properties.
What is revenue per employee? Revenue per employee is a ratio that measures the total revenue of an organization divided by its current number of employees. It provides a rough estimate of how much money is generated per employee at an organization.
What is Apple's revenue per employee? ›
Apple generates $2.3 million revenue per employee, among highest big tech companies. The modern workforce is more valuable than ever before, and big tech companies are reaping the benefits.
What is the difference between revenue per employee and profit per employee? ›
Another metric that you may be interested in is the revenue per employee ratio. Unlike the profit per employee formula, revenue per employee doesn't consider income and costs. This means that it may provide you with a more accurate understanding of your core operational efficiency.
What are some of the problems with using the RPE scale? ›
Because RPE is self-reported, it's possible that you might not assess yourself correctly. Someone new to exercise may believe they're working out harder than their heart or breathing rate shows. Similarly, extremely fit athletes may think they're going at a moderate pace when they're actually at their maximum RPE.
How to explain RPE? ›
The Borg Rating of Perceived Exertion (RPE) is a way of measuring physical activity intensity level. Perceived exertion is how hard you feel like your body is working.
How do you determine RPE? ›
The way to calculate with the 6-20 RPE scale is by simply multiplying your heart rate by 10. If you're at rest (exerting the least amount of energy as possible), it's probably around 60 beats per minute (though athletes tend to have lower resting heart rates).
What are the 4 methods to increase revenue? ›
What Are The '4 Methods to Increase Revenue'? If you want your business to bring in more money, there are only 4 Methods to Increase Revenue: increasing the number of customers, increasing average transaction size, increasing the frequency of transactions per customer, and raising your prices.
How does HR increase revenue? ›
Building A Positive Workplace Culture
According to a study by Gallup, organizations with high employee engagement have 23% higher profitability. A positive culture not only improves employee morale, but it also has been shown to increase productivity, reduce absenteeism and turnover, and improve customer satisfaction.
What is a good salary to revenue ratio? ›
What Ratio Should Businesses Aim For? While there is no universally defined percentage for a "good" Payroll to Revenue Ratio, a commonly cited guideline is that labor costs should ideally account for 15-30% of total revenue.
What percentage of revenue should your staffing be? ›
Determining the Ideal Payroll Percentage
However, payroll as a percentage of revenue should range between 15% and 30%. Anything above 30% typically means your labor costs are starting to eat into your earnings, and you are not effectively controlling labor costs.
