What is Revenue Per Employee?
The Revenue Per Employee measures the sales efficiency of a company by comparing its revenue to its number of employees.
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How to Calculate Revenue Per Employee
The revenue per employee metric 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 the revenue per employee increases over time, that implies the operational efficiency of the company has improved – all else being equal.
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.
