How to Calculate Revenue per employee or, what key performance measures are important for this employee?
These are questions I am often asked by clients and rather than write a blog about this myself, why not reference an excellent one that already exists.
The following is a clip from an article written by Peter I. Hupalo author of Thinking Like an Entrepreneur:
Revenue Per Employee In Business
I recently read an excellent book, What No One Ever Tells You About Starting Your Own Business by Jan Norman. The book tells a bit about 101 entrepreneurs, their companies, and the advice these entrepreneurs would give someone just starting a small business.
For a few of the companies profiled, Norman mentions both the company revenue and the number of company employees. Whenever I see this type of information for a company, I usually calculate the simple ratio of Revenue Per Employee.
For example, for a video production company mentioned, with sales of $15 million and 130 employees, the Revenue Per Employee is about $115,000. For Optiva, a maker of a sonic toothbrush, and another company profiled, the revenue was $100 million. Optiva had 250 employees, giving a Revenue Per Employee of $400,000.
Revenue Per Employee is a key ratio for start-up companies. A low Revenue Per Employee in comparison to similar companies is a bad sign, often boding possible failure.
Companies usually fail for one of two basic reasons. Either, the companies fail at marketing their product or service and generating sales. Else, companies fail to keep the costs to produce and market their product sufficiently low.
Some new companies have problems generating any sales at all! There is a lack of basic revenue. Failure to make sales shows up as low Revenue Per Employee, though, as the owner of your business, you will instinctively know when your sales are too low!
You can read the full story here: Revenue-Per-Employee and purchase the full book.
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Contact me if you would like assistance calculating revenue per employee in your business