Wall Street Prep

Revenue Per Employee

Guide to Understanding Revenue Per Employee

Learn Online Now

Revenue Per Employee

How to Calculate Revenue Per Employee

The revenue per employee is utilized by companies to track the sales productivity of an average employee.

While there are limitations to the metric — such as representing an overly broad, lagging indicator of operating efficiency — the RPE still can be useful for internal budgeting and setting targets related to sales quotes.

In particular, the metric is most applicable for companies where the primary strategy for driving growth is via the sales team (e.g. software-as-a-service, or “SaaS”).

If a company’s revenue per employee increases over time, it is generally perceived as a positive indicator that the team is working more efficiently.

In other words, the company can generate the same (or more) revenue using fewer resources, which in this case refers to the number of employees.

Therefore, a company with higher revenue per employee should expect to see more favorable profit margins – all else being equal.

However, for the metric to retain its usefulness, comparisons are limited to a company’s own historical periods and to its closest industry peers.

For example, an industry with high operating leverage like energy and telecommunications would see much greater revenue per employee metrics on average than in retail.

Other factors such as the company’s maturity (e.g. early-stage, growth-stage, late-stage) and size with regard to total revenue must also be taken into account.

Revenue Per Employee Formula

The formula for calculating the revenue per employee is as follows.

Formula
  • Revenue Per Employee = Revenue ÷ Average Number of Employees

Where:

  • Revenue: The revenue amount is the annual revenue brought in during a specific year.
  • Average Number of Employees: The average number of employees, as suggested by the name, is simply the average between the beginning and ending number of employees.

The rationale for using the average number of employees rather than the ending employee count is to match the numerator and denominator in the duration covered (and to account for employee turnover through the year).

But the difference is normally negligible unless there is a noticeable amount of employee churn or new hirings.

The metric can be made more practical by including only the employees that are directly involved in generating revenue, such as the sales team, yet such information is not always readily accessible.

Revenue Per Employee Calculator – Excel Model Template

We’ll now move to a modeling exercise, which you can access by filling out the form below.

Submitting ...

Revenue Per Employee Calculation Example

Suppose a SaaS company is attempting to measure the efficiency of its sales and marketing team by tracking its revenue per employee.

The employee data we’ll be working with consists of the following:

  • 2018 = 200 Employees
  • 2019 = 230 Employees
  • 2020 = 300 Employees
  • 2021 = 340 Employees

The revenue that corresponds to the periods above is as follows:

  • 2018 = $20 million
  • 2019 = $30 million
  • 2020 = $36 million
  • 2021 = $40 million

Starting in 2019, we’ll take the revenue amount and divide it by the average of the ending employee count and the prior year’s employee count, which results in the company’s revenue per employee.

  • 2019 = $140,000 RPE
  • 2020 = $136,000 RPE
  • 2021 = $125,000 RPE

While the average revenue per employee may have declined over time from $140k to $125k, that is not necessarily a red flag, considering how minor the decrease is relative to the fact that the company’s revenue has doubled.

Revenue Per Employee Calculator

Step-by-Step Online Course

Everything You Need To Master Financial Modeling

Enroll in The Premium Package: Learn Financial Statement Modeling, DCF, M&A, LBO and Comps. The same training program used at top investment banks.

Enroll Today
Comments
guest
0 Comments
Inline Feedbacks
View all comments
X

The Wall Street Prep Quicklesson Series

7 Free Financial Modeling Lessons

Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts.