While "income per employee" often refers to a company's net profit divided by its total number of employees, a more commonly used and insightful benchmark for productivity and financial health is revenue per employee. This metric indicates how much sales revenue each employee generates for the company.
A good revenue per employee figure can vary significantly based on industry, business model, and company size. However, general benchmarks suggest that higher revenue-generating companies tend to have higher revenue per employee.
Benchmarks for Revenue Per Employee
General industry benchmarks offer a helpful guide for what constitutes a strong revenue per employee figure. These often correlate with a company's total annual revenue:
| Company Revenue Band | Good Revenue Per Employee Benchmark |
|---|---|
| Up to $1,000,000 | $43,000 |
| $50,000,000 or more | $230,000 |
Note: For companies with revenues between these two ranges, a good benchmark would fall proportionally between $43,000 and $230,000.
Understanding the Difference: Income vs. Revenue Per Employee
It's crucial to distinguish between "income per employee" and "revenue per employee":
- Revenue Per Employee: This metric (Total Revenue / Number of Employees) measures the efficiency with which a company uses its workforce to generate sales. It's a key indicator of productivity and scalability.
- Income Per Employee (Net Profit Per Employee): This metric (Net Profit / Number of Employees) indicates how much profit each employee contributes after all expenses (including cost of goods sold, operating expenses, interest, and taxes) are accounted for. While also valuable, it's less commonly benchmarked across broad industries compared to revenue per employee due to vast differences in cost structures.
Factors Influencing a "Good" Figure
Several factors impact what constitutes a good revenue or income per employee for any given business:
- Industry: Industries with high capital intensity (e.g., manufacturing, infrastructure) or high-value services (e.g., consulting, software) may naturally have higher revenue per employee than labor-intensive industries (e.g., retail, hospitality).
- Business Model: Companies with highly automated processes, subscription models, or digital products often achieve higher figures than those reliant on extensive manual labor.
- Operational Efficiency: Streamlined processes, effective use of technology, and optimized workflows can significantly boost productivity per employee.
- Employee Skill and Training: A highly skilled and well-trained workforce is generally more productive and can contribute to higher per-employee metrics.
- Market Conditions: Economic cycles, market demand, and competitive landscapes can all influence a company's ability to generate revenue and profit per employee.
How to Calculate and Improve Your Metrics
To calculate these metrics for your own business:
- Revenue Per Employee: Divide your total annual revenue by your average number of full-time equivalent (FTE) employees for that year.
- Income (Net Profit) Per Employee: Divide your annual net profit by your average number of FTE employees for that year.
To improve these figures, consider strategies such as:
- Investing in Technology: Automation, AI tools, and efficient software can reduce the need for manual labor and increase output per person.
- Optimizing Processes: Identify bottlenecks and inefficiencies in workflows to streamline operations and enhance productivity.
- Employee Development: Provide training and development opportunities to improve skill sets and overall performance.
- Strategic Hiring: Focus on hiring high-performing individuals who can contribute significantly to revenue generation or cost savings.
- Pricing Strategy: Evaluate and adjust pricing to ensure that products or services are appropriately valued, maximizing revenue.
By regularly tracking and analyzing these per-employee metrics, businesses can gain valuable insights into their operational efficiency, productivity, and overall financial health.
