Know the Figures

Revenue Per Employee

Whether the headcount you have matches the revenue you make.

Replaces: Benchmarking reports and board-pack analysis

How to use it

Divide revenue by headcount, then check the result against gross profit and payroll. The ratio on its own says little; the comparison between what each employee produces and what each employee costs says a great deal.

Where the number comes from

  • Revenue per employee is annual revenue divided by headcount.
  • Gross profit per employee applies the gross margin first, which is the more meaningful figure for any business with real cost of delivery.
  • Payroll per employee is total loaded payroll divided by headcount.
  • The headcount the benchmark implies is revenue divided by the benchmark figure.
  • Affordable hires holds revenue per employee constant through the growth plan — the headcount that growth supports without diluting the ratio.

What goes wrong

The part most calculators leave out.

  • Cross-industry comparison is meaningless. A software company and a staffing agency have revenue per employee figures an order of magnitude apart and neither tells you anything about the other.
  • Contractors and outsourced functions distort it badly. Moving work to an agency improves revenue per employee without improving the business at all, which is why the metric is easy to manage and easy to mislead with.
  • Revenue is the wrong numerator for low-margin businesses. A reseller can post excellent revenue per employee on margins that do not sustain the payroll, which is why gross profit per employee is shown alongside.
  • The metric lags. Hires made this quarter depress it long before they produce anything, so a growing company always looks worse than a stagnant one.
  • Using it as a target invites the wrong behaviour — cutting headcount improves the ratio immediately and can damage the revenue that follows.
  • Benchmarks are usually drawn from public companies at far greater scale. Comparing a 95-person business to them is comparing different animals.

Efficient, or understaffed?

A business does 14m with 95 people — about 147,000 of revenue each, against a 180,000 benchmark. At the benchmark the same revenue would need 78 people, so it appears 17 over. But gross margin is 74%, meaning each employee produces about 109,000 of gross profit against roughly 90,500 of loaded payroll cost. The margin between them is 18,500 per head, and that has to cover every other cost in the business. Whether 95 is the wrong number depends entirely on whether those 17 people are building next year’s revenue or servicing last year’s. This metric cannot tell you which, and neither can the benchmark.

Questions

What is a good revenue per employee?
Only comparable within a sector and at similar scale. Software businesses commonly report far higher figures than services businesses, and neither number is a target — it is a description of the model.
Should I use revenue or gross profit per employee?
Gross profit, for any business with meaningful cost of delivery. Revenue per employee flatters resellers and low-margin models by counting money that immediately leaves again.
Do contractors count in headcount?
They should, if you want the metric to mean anything. Excluding them lets you improve the ratio by changing employment status rather than by improving the business.
Does anything I type get sent anywhere?
No. The whole calculation runs in your browser. Nothing is transmitted, stored, or logged, and there is no account to create.

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