How To Calculate Revenue Per Employee

Revenue per employee divides a company's revenue by the number of people it employs. It is a productivity ratio, and it is most useful compared against the same company in earlier years or against close competitors.

The headcount choice matters more than most people expect. A figure using full time equivalents is comparable across firms; a figure using total bodies including part timers is not, because the mix of part time work varies a lot between businesses.

Averaging headcount over the year is better than using the year end number. A company that doubled its staff in November will look artificially productive if the December headcount is used for a year of revenue earned largely by a smaller team.

The measure rewards outsourcing. Moving work to contractors removes people from the denominator while the revenue stays, so the ratio rises without any real improvement in how the business operates.

It also rises with capital intensity. A highly automated business employs few people for a lot of revenue, which is why comparing a software firm with a restaurant chain on this measure says more about the industries than about either management team.

Profit per employee is the harder edged companion. Revenue per head says nothing about cost structure, and a business can lift its ratio by winning low margin work that destroys value.

The trend is the informative part. Rising revenue per employee usually means output is growing faster than headcount, which is the definition of genuine productivity improvement.

Decomposing that change is straightforward. Revenue growth of 20 percent against headcount growth of 10.3448 percent explains the 8.75 percent gain per head exactly, and each of the two inputs can then be examined on its own.

A falling ratio is not automatically bad. A company investing ahead of a revenue ramp will deliberately add people first, and the ratio recovers when the new capacity starts producing.

Benchmarks are industry specific to the point of being unusable across sectors. Typical values differ by an order of magnitude between a labour intensive service business and a capital intensive manufacturer.

Very high ratios usually signal a business model rather than excellence, whether that is a trading operation, a licensing structure or heavy automation tied to a small team.

For the running example, 24,000,000 of revenue over 160 employees is 150,000 per head. The previous year, 20,000,000 over 145 employees was 137,931.03.

That is an increase of 8.75 percent, produced by growing revenue 20 percent while headcount grew 10.3448 percent. Output grew nearly twice as fast as the team.

Each million of revenue is carried by 6.6667 employees, which is the inverse framing and is sometimes easier to communicate to a hiring plan.

The measure says nothing about pay. Two firms with identical revenue per employee can have radically different labour costs, and therefore radically different profitability.