Revenue Per Employee: Here Is How To Calculate It

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Successful businesses know how to measure their performance effectively. Through several key indicators, companies can identify areas that are underperforming and need to be improved or where their operations excel and are delivering better than expected results. Some standard metrics are revenue growth, profit margins, customer and employee satisfaction, revenue per employee, and more. 

To make informed and appropriate decisions, however, the business owners or top managers must have access to accurate and relevant information. The compiled data must reflect the actual state of the company, its processes, and the influence of the applicable outside factors. 

Larger organizations can set up their own internal accounting departments to take care of their accounting needs and ensure the accuracy of the collected data. Startups and SMEs (small and medium-sized enterprises) are unlikely to have the necessary resources to follow the same route. A good alternative could be to turn to a professional accounting firm. Companies such as accountants East London provide comprehensive service packages that businesses can choose from depending on their particular accounting needs and goals. 

The Relevance Of Revenue Per Employee

This essential financial ratio can help organizations determine how productively they are using their workforce. In essence, it is a measure of the average financial productivity of each company employee.

To calculate the revenue per employee is relatively simple – all companies have to do is divide their revenues generated during a specific period by the total number of their employees.

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A higher revenue per employee number would indicate that the organization is doing well in this regard and is moving towards optimal utilization of its available workforce. 

However, the revenue per employee ratio is meaningless on its own and must be set within a frame of reference. Typically, the current result is measured against the company’s historic ratios over several years. The overall change in the metric will demonstrate whether employee productivity is improving, has stagnated at a certain level, or is falling down and needs to be addressed. 

After all, from a business perspective, the employees are a type of unique asset. As such, organizations should apply appropriate programs and techniques that will nurture their most productive employees while motivating and encouraging the rest to elevate their current productivity levels.  

Important Considerations

To use the revenue per employee ratio effectively, businesses must take into account several of its limitations and major factors that can impact it. For example, labor-intensive companies tend to post lower revenue per employee results when compared to operations that are less reliant on the amount of labor performed by their workers. 

As a result, the revenue per employee ratio is typically used to measure companies operating in the same industry sectors because businesses generating greater revenue while keeping a minimal full-time workforce could heavily skew the metric. 

It should also be noted that employee turnover can impact the revenue per employee ratio within a certain period drastically. The turnover rate shows the percentage of the company’s total workforce that has decided to leave voluntarily and that will need to be replaced with new employees. Workers that have reached retirement age or have been terminated by the company do not count towards the employee turnover rate. 

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Related Metrics

A related financial metric that is a bit more specific in scope is the profit per employee (net income per employee). Instead of the total revenues generated by the business, it focuses on the net income in order to measure how efficient and profitable are the company’s operations.

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The profit or net income represents the funds left after the expenses, interest, and taxes have been deducted from the total revenue for the period. 

Calculating the overtime per employee ratio is also important if the specific company is trying to motivate its workforce with overtime payments.

This employee performance metric will show whether the overtime program is delivering the expected results or if it leads to key employees becoming even more overworked. In these cases. it may also cause the overall performance to suffer while also lowering morale and weakening employee retention. 

Finally, absenteeism is a metric that has become increasingly relevant as companies switched to either a fully remote or hybrid work model. Absenteeism is strongly connected to employee performance. In general, highly motivated workers that are engaged in their work and feel a personal connection to the company, its core values, and mission are less likely to take sick days or be absent from work without having a good reason. 

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