Revenue per Employee

Definition

Revenue per employee measures the amount of sales generated by one employee. This is a measure of performance of human resources of a company. It is an indicator of productivity of company’s personnel. It also indicates how efficiently a company is utilizing its human resources.

Generally speaking higher the revenue per employee figure is, the better it is. But revenue per employee will vary in different industries according to intensity of labor. Revenue per employee is less in the industries which are labor-intensive. On the other hand this metric is higher in the high tech, low labor-intensive companies.

Revenue per employee is an absolute figure in terms of a currency; therefore, it may appear to be less useful in analytical sense. For analytical purposes this figure should be compared with the historical data to see any improvement or deterioration. It should also be compared with the other similar companies operating in the same industry. This comparison over time and across industry will give usefully insights into the productivity of personnel.

Revenue per employee is also influenced by the age of a company. Young companies usually have small revenues and they are usually in the process of hiring employees to fill key positions. Therefore their revenue per employee is lower than the established companies.

Calculation (formula)

The formula for calculation of revenue per employee is given below

Revenue per Employee = Sales Revenue / Number of Employees

Usually the number of employees keeps on changing over the period. Therefore, it is preferable to use average number of employees during the period. The figure for sales revenue can be found in the income statement.

Sometimes earning per employee is also calculated by using net income, instead of sales revenue, in the above formula. This is also a useful measure of productivity of employees.