Revenue per employee (RPE) measures how much revenue a company generates for each individual it employs. Of course, not all employees have the same impact on revenue, but RPE can indicate how productive and efficient your company is.
How to Calculate Revenue Per Employee
RPE is easy to calculate: simply divide your company’s total revenue for the last 12 months by its total number of employees. Most companies only include full-time employees when calculating RPE.
As an example, say a company that has 50 employees made $10 million in revenue last year. In that case, divide $10 million by 50 to get the company’s RPE of $200,000.
Why Does Revenue Per Employee Matter?
Revenue per employee can be a measure of a company’s health. A higher RPE indicates that employees are more productive and that a company is generating a greater return on the investment it has made in its employees. Higher RPE is usually associated with greater profitability, although this isn’t always the case.
RPE is often calculated alongside profit per employee and expenses per employee. Alternatively, companies can calculate their net income per employee or sales per employee. Taken together, these metrics can help a company track whether it’s using its human capital efficiently.
Many companies use RPE as a benchmark. Companies can track changes in their own RPE over time to see if their workforce is becoming more or less productive in terms of activities that make money for a business. Companies can also compare their own RPE against the RPE of competitors in the same industry or region.
What Is a Good Revenue Per Employee?
There is no “good” RPE for a company without context. Average RPE can vary widely across industries and across companies of different sizes. For example, Netflix has an RPE of more than $2.2 million, but a local auto shop with just a handful of employees may have an RPE of $150,000.
The best way to determine if your company’s RPE is good or bad is to compare it with the RPE of similar companies in your industry. Ideally, these are competitors with roughly the same number of employees. Knowing the average RPE for your industry can help you determine whether your business is using its employees as efficiently as possible.
As a starting point, here are the average RPEs for a few major industries:
- Energy: $1.79 million
- Healthcare: $890,000
- Finance: $650,000
- Tech: $480,000
- Industrials: $320,000
How to Improve Revenue Per Employee
If your business’s RPE is lower than that of similarly sized competitors, it could be a sign that your workforce isn’t as productive as it could be. There are many possible reasons for less than optimal productivity and no silver bullet for how to increase RPE.
That said, here are some things your company can do to boost productivity:
Implement key performance indicators
Many companies don’t have a way to measure how productive their workforce is. Key performance indicators (KPIs) are a way to measure employees’ productivity based on specific, measurable milestones.
KPIs are far from perfect and can incentivize employees to prioritize the tasks that are being measured at the expense of other responsibilities. However, they can also be a valuable tool for identifying areas of improvement that could boost your company’s RPE.
Focus on managers
High-quality managers can have a huge impact on the productivity of your workforce and your employees’ ability to generate revenue for your company.
Carefully evaluate your managers’ strengths and weaknesses. If you find that specific managers are underperforming, you can offer training to ensure that they lead their teams as effectively as possible.
Recruit and promote talented employees
Achieving a high RPE starts with having talented employees who are passionate about their work. Your recruiting and promotion funnels play important roles in putting top employees in the positions where they can be most productive. Using KPIs or another quantitative metric of productivity can help you identify existing employees to groom for promotion.
Work on your company culture
Employees are typically more productive when morale is high. If employees feel that their own values are aligned with your company’s core values, they’re more likely to go the extra distance to help projects succeed.
A great way to start working on your corporate culture is to conduct a thorough culture audit. An audit provides the data you need to make changes to your workplace policies, company mission, and more.
Revenue per employee is calculated by dividing a company’s revenue for the last 12 months by the number of full-time employees at the company. It can be used as a benchmark of how productive a company’s workforce is over time or relative to industry competitors.
There’s no single best way to improve RPE. However, companies that want to raise their RPE can institute key performance indicators, focus on hiring high-quality managers and employees, and conduct a company culture audit to improve morale.