Revenue per Employee (also known as "Sales per Employee") is a measure of the total annual revenue generated by a company, divided by the total number of employees.
The Revenue per Employee ratio broadly indicates how expensive it is to run an organization. It can be applied universally and is often a good benchmark for companies within the same industry. It is especially useful for companies that rely heavily on employees (like, for example, retail companies).
Formula for Revenue per Employee
There’s no one clear answer to this question. Benchmarks for Revenue per Employee understandably vary significantly across industries, companies, and revenue stages. For example, labor costs vary tremendously across regions which has obvious implications on the Revenue per Employee ratio. Furthermore, early-stage companies will be more likely to see highly volatile Revenue to Employee ratios until they begin to produce more stable revenue. Similarly, organizations that are working to develop new technologies will likely have a lower ratio in their early years.
A higher Revenue per Employee number is better, and interpreting the ratio is therefore relatively easy. A higher figure generally indicates a more efficient company, meaning they can operate on lower overhead costs and do more with fewer employees (which also indicates healthier profit margins).
Comparing Revenue per Employee year-over-year will help leaders understand the most efficient performance periods vs the least efficient. This can help inform hiring, training, and staffing strategies to optimize the Sales per Employee ratio.
The ratio can and often is used in conjunction with other helpful ratios like Profit per Employee and Expenses per Employee, which paint a better picture of overall efficiency.
It is important to watch the Revenue per Employee ratio over a longer time period in order to get a clear picture of the state of a business. A jump in Revenue per Employee could be an outlier. For example, major layoffs can lead to a ratio increase if other employees take on extra work, but this increase doesn’t account for burnout and inefficient work if the trend persists.
Steadily rising Revenue per Employee ratios can often indicate one of several things, including streamlined processes, great and consistently improving sales, or recent infusions of additional capital.