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.
What does revenue per employee tell you? ›
Revenue per employee (RPE) is a financial metric that measures the average profit each employee contributes. Revenue per employee allows organizations to determine the efficiency, productivity, and profitability of each employee and the company as a whole.
What is the meaning of employee revenue? ›
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. It's a helpful metric to use when: Comparing revenue per employee year-on-year.
How do you increase revenue per employee? ›
Invest in employee training and development: Providing employees with the training and resources they need to perform their jobs more efficiently and effectively can help increase their productivity and generate more revenue per employee.
What is the advantage of revenue per employee? ›
It gives a company insights into how much value they get from each employee, but that's not all. Revenue per employee drives important business decisions and helps gauge how well a business performs against competitors within its industry.
What does revenue tell you about a company? ›
Revenue is the money a company earns from the sale of its products and services. Cash flow is the net amount of cash being transferred into and out of a company. Revenue provides a measure of the effectiveness of a company's sales and marketing, whereas cash flow is more of a liquidity indicator.
Why is revenue per FTE important? ›
There are four important reasons to calculate revenue per FTE. It sheds light on how well your workforce is utilised and optimised. A higher revenue per FTE means your workforce is effective, but a lower revenue per employee ratio might indicate understaffing or overstaffing issues.
What is Amazon's revenue per employee? ›
Amazon.com's operated at median revenue per employee of 0.33 from fiscal years ending December 2019 to 2023. Looking back at the last 5 years, Amazon.com's revenue per employee peaked in March 2024 at 0.39. Amazon.com's revenue per employee hit its 5-year low in December 2021 of 0.29.
How is revenue defined? ›
The basic revenue definition is the total amount of money brought in by a company's operations, measured over a set amount of time. A business's revenue is its gross income before subtracting any expenses. Profits and total earnings define revenue—it is the financial gain through sales and/or services rendered.
What is Apple's revenue per employee? ›
According to a new study by Ondeck, one company that continues to generate high revenues, despite having a sizable workforce, is Apple. The report says Apple makes a staggering $2,348,171 per employee annually.
The ideal revenue per employee for enterprise SaaS companies is $120,000 per employee for companies under $20 million in revenue to $168,000 per employee for companies up to $100 million in revenue, according to a 2018 OpexEngine study.
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 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.
Should revenue per employee be high or low? ›
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.
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 percentage of revenue should you pay employees? ›
As a business owner, you should allocate 15-30% of your revenue to paying your employees. However, where your business falls in this range varies depending on your industry.
What does total revenue tell you? ›
Total revenue is the amount of money a company brings in from selling its goods and services. In other words, company's use this metric to determine how well they're generating money from their core revenue-driving operations. Marginal revenue directly links to total revenue.
Why is it important to know the revenue of a company? ›
Profitability Benchmark: Revenue provides an important benchmark to analyze profitability. By comparing Revenue to costs and expenses, companies determine their profit margins.
