Revenue Per Employee

What Is Revenue per Employee?

Revenue per employee — calculated as a company's total revenue partitioned by its current number of employees — is an important ratio that generally measures how much money every employee generates for the firm. The revenue-per-employee ratio is most valuable while taking a gander at historical changes in a company's own ratio or while looking at it against that of different companies in a similar industry as part of a fundamental analysis.

How Revenue per Employee Works

Revenue per employee is a significant logical instrument since it measures how efficiently a particular firm uses its employees. Preferably, a company needs the highest ratio of revenue per employee conceivable in light of the fact that a higher ratio shows greater productivity. Revenue per employee likewise proposes that a company is utilizing its assets — in this case, its investment in human capital — carefully by creating workers who are exceptionally useful. Companies with high revenue-per-employee ratios are frequently profitable.

A few analysts utilize a variation of the revenue per employee ratio. In this ratio, they supplant revenue with net income. A ratio like revenue for every employee is sales per employee, which is calculated by partitioning a company's annual sales by its total employees.

Factors Affecting the Ratio of Revenue per Employee

The Company's Industry

Since labor demand differs from one industry to another, it is generally significant to compare a business' revenue for each employee with that of different companies in its industry — especially with its direct rivals. This ratio has little value inappropriately.

Traditional banking, for instance, requires numerous employees to staff brick-and-mortar areas and answer customer questions. This differentiations with online banks, which conduct business on the Internet and have compelling reason need to set up physical areas with employees. In this way, a banker would need to compare its company's revenue per employee ratio with that of comparative types of banking institutions. Companies in labor-escalated industries like agriculture and neighborliness regularly have lower revenue-per-employee ratios than companies that require less labor.

Employee Turnover

Revenue per employee is impacted by a company's employee turnover rate, where turnover is defined as the percentage of the total labor force that leaves willfully (or is terminated) every year and must be supplanted. Turnover is not the same as employee attrition, which alludes to workers who retire or whose positions are wiped out on account of [downsizing](/cut back).

Employee turnover ordinarily requires a company to talk with, hire, and train new workers. During these onboarding processes, companies regularly become less useful on the grounds that existing workers might have to guide another employee and share part of the responsibility. The company's expenses additionally frequently develop during the onboarding system as they get outside specialists, pay for special courses or training classes, and pay employees to spend additional time at work even however they are less useful.

The Age of the Company

Startup companies that are hiring to fill key positions could in any case have somewhat small revenue. Such firms will quite often have lower revenue-per-employee ratios than additional laid out companies that can leverage hiring for those equivalent key situations over a bigger revenue base.

On the off chance that a developing company needs to take on more assistance, management would preferably have the option to develop its revenue at a quicker rate than its labor costs, which frequently is reflected in consistently rising revenue-per-employee ratios. At last, increased proficiency in dealing with its revenue per employee ought to lead to a company's expanding margins and further developed profitability.

Special Considerations

Investors keen on working out a company's revenue for each employee can find the required revenue and employee numbers in the company's financial statements and annual reports. The ratio itself is not difficult to work out and contrasting revenue per employee between various companies is a genuinely clear interaction. By and large, companies with higher revenue-per-employee numbers operate streamlined and efficient organizations, have lower overhead costs, and are more useful than their rivals.

There are several different ratios an investor ought to likewise consider while investigating a company as an expected investment. Investors ought to survey a company's profitability ratios, like profit margin, return on assets (ROA), and return on equity (ROE).

Highlights

• Revenue per employee is an important ratio that generally measures how much money every employee generates for the company.
• For the revenue-per-employee ratio to be helpful, it ought to be involved while contrasting and dissecting companies in a similar industry.
• Preferably, a company needs the highest ratio of revenue per employee conceivable on the grounds that a higher ratio demonstrates greater productivity, which frequently means more profits for the company.
• To compute a company's revenue for each employee, partition the company's total revenue by its current number of employees.
• Different factors that can impact the revenue-per-employee ratio incorporate employee turnover and the age of the company.