Revenue per employee (RPE) is an HR KPI used to calculate a rough estimate of how much money each employee generates for the company. You do this by measuring the total revenue that your organization generates over a given period (usually a year), then divide this figure by your current number of employees. The biggest barrier to creating a higher profit per employee is having the right talent with the right capabilities to deliver on business outcomes. This means hiring, retaining, and training talented employees in the capabilities required for them to perform their jobs efficiently, all of which costs money. You can reduce costs by streamlining your recruitment process (think using a capability map to ensure you’re choosing candidates with relevant capabilities). It’s easy to tell employees to just “work harder” to increase your profit per employee ratio, but that’s not realistic in any sense.
- For investors, profit per employee can be an important indicator of a company’s long-term profitability, growth potential, and financial sustainability.
- Data has been compiled by Statista using the company’s annual financial reports.
- Measuring how well you turn talent into value must include overheads and expenses.
- The company generated $80,000 annual revenue last year, and during this period the organization had a total of 40 employees.
- You can’t compare the RPE for a company like Autoparts ABC with that of Google’s parent company Alphabet.
Other factors, such as revenue growth, profit margins, and debt levels, should also be taken into consideration. Furthermore, profit per employee can be influenced by a variety of factors, such as the industry in which a company operates, the level of automation in its operations, and the skill level of its workforce. 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.
The challenges of trying to increase profit per employee
Once you have both numbers, simply divide the net profit by the number of employees. For example, if a company has a net profit of $2 million and 100 employees, its profit per employee would be $20,000 per year ($2 million / 100 employees). One of the most common ways of measuring a company’s success is their profit or loss over a period of time, but which of the world’s biggest companies are generating the most profit per employee?
- This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional.
- Its main purpose is to measure how efficiently an organisation utilises its workforce to generate profit.
- A good revenue per employee benchmark ranges between $43,000 and $230,000 per employee.
Good leaders who look ahead and benchmark against their peers set the bar higher. One of the most overlooked benchmarks is profit per employee, or what I call “return on people.” This benchmark is a direct measure of how well you turn the talent in your organization into value for your customers. In other words, it’s an advanced measure for productivity and competitive advantage. Use the formula we’ve given here to calculate your RPE and put processes in place to improve it.
Increase your store’s revenue per employee
The Company connects consumers, merchants, financial institutions, businesses, strategic partners, and government entities to electronic payments. The recent strong outperformance could be a result of greater consistency in net income generation. While both AFL and RE operate in the insurance business, AFL has much higher earnings visibility than RE. I will also briefly look at the counter’s share price performance vs. the S&P 500 to evaluate if such efficiency has translated to greater price outperformance. Overall, these terms are primarily differentiated by the adjectives that precede them. Overall, earnings are the net value a company has achieved from operating activities for a specific reporting period.
Number of employees
Having an online store means more revenue with no extra human power necessary, raising their RPE. Deliver a metric catalog with straightforward metric-centric analytics to your business users. A number of the world’s best-known companies featured in the upper echelons of the rankings; Visa, Apple, Alphabet, Netflix, and Microsoft all ranked in the top 35.
Improve Employee Productivity
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. So long as the return exceeds the cost, profit per employee is the better metric because it not only represents the scarcest resource but also reflects profit after the expensing of necessary investments. Before exploring the new metrics needed to achieve these goals, let’s reflect upon the way some companies have recently created great wealth by using their thinking-intensive people rather than their capital. It is engaged in the ownership, acquisition, development and management of logistics. Compared to fellow insurance companies in this list (RE and AFL), CINF has witnessed much stronger price performance over the past 1-year as well as a 10-year horizon.
Competitor number two employs more people even though it makes more money than the company in question. Revenue per employee is usually measured against your total revenue for the last twelve months (LTM). However, if you want to calculate your revenue per employee for a different time period (e.g., quarterly, bi-annual), then you just need to adjust the appropriate time period when extracting your data.
This metric is important because it allows companies to compare their financial performance to others in their industry and helps them identify areas for improvement. For investors, profit per employee can be an important indicator of a company’s long-term profitability, growth potential, and financial sustainability. In business, one of the most important metrics to track is the profit per employee ratio. This ratio measures how much profit a company generates for each employee on its payroll. Understanding this ratio and knowing how to calculate it can provide valuable insights into a company’s financial health and performance.
Many retail store owners fall into the trap of only looking at turnover when evaluating store performance. Revenue per employee, however, gives greater insight into how profitable each season was. Rengie Wisper, co-founder of Ever Wallpaper, says, “If you’re growing revenue but not hiring https://personal-accounting.org/what-is-profit-per-employee-and-how-can-it-help-my/ new employees, that’s a good sign that you’re becoming more efficient with your time and resources. Efficient businesses make more money by squeezing every ounce of productivity out of their team. Let’s look at some of the different reasons for calculating revenue per employee.
Related Metrics & KPIs
When this happens, you’ll find you’re paying employees not to contribute to revenue. Instead, it would help if you found them work to do that will contribute to your business’s revenue or downsize by letting some of them go. Knowing your RPE helps your business make important macro-level decisions concerning employee involvement.
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