What is Revenue Per Employee (RPE)?
Revenue per employee is the estimated number of how much each employee brings into your company. It’s a way to calculate how much profit each employee generates. Calculating your revenue per employee ratio can help you determine how productive your workforce is and how efficiently your company is running.
How do you calculate Revenue Per Employee?
To calculate your revenue per employee, there’s a simple formula. You divide the company’s total income by the average number of employees:
Total revenue / Total average number of employees
You can make this calculation annually or quarterly, depending on how fast you’re growing and how often you’re recruiting new hires. If you’re regularly hiring new team members, you may want to calculate your RPE quarterly to give you a more accurate overview of your team’s productivity.
Using the average number of employees for the calculation helps to account for fluctuations in the staff numbers.
To find the average, use this formula :
No. employees at the start of the period + No. employees at the end of the period / 2
Which factors affect RPE?
These factors all affect your RPE number:
- Size of your company
- Age of your company
- Employee turnover
Why is Revenue Per Employee a useful metric?
Keeping a record of RPE can help you understand where your growth comes from and how new hires impact your bottom line. A larger workforce doesn’t necessarily mean a more efficient one, so tracking RPE can help you cut costs on unnecessary hires.
When you measure your RPE, you can compare it with your hiring, training, and retaining costs, which gives you insight into employees’ lifetime value. The metric can help inform your staffing strategy and budget for future hiring.
You can also use your RPE figure to compare yourself with similar businesses in your niche that are at a similar stage in their growth. Benchmarking your RPE against the average in your industry will help you determine whether you have high productivity and identify areas for improvement.
Knowing your RPE can also help you calculate your company’s revenue potential and can be a helpful figure to share with potential investors.
What’s the average RPE for SaaS companies?
A high revenue-per-employee ratio usually indicates efficiency and a high level of productivity. It suggests that the company invests in training and development to build a highly skilled and productive team.
The average RPE for a SaaS company depends on your industry, the size of your business, and the stage you are at in your growth. Check out this report for up-to-date figures on the average RPE by industry.
A survey by Opex Engine found that for early-stage SaaS businesses under $20M, the average revenue per employee was $120k. Companies with up to $100M in revenue had an average RPE of $168k.
They surveyed 11 public SaaS companies which gave them the following data:
Here are the average RPE figures for some of the biggest tech companies:
Compared to some of the world’s most well-established tech companies, the RPE for the SaaS businesses mentioned above is relatively low. This is why it’s essential to measure your RPE against your industry and companies of a similar size.
In general, the higher your revenue per employee for your industry, the more profitable your business. If you have a high RPE number, you are using your resources efficiently and operating a streamlined operation.
How can you improve your RPE?
1. Improve staff turnover
If you have a high staff turnover, it could lower your RPE. A high turnover means you’ll need to invest resources into regularly hiring, interviewing, and training new staff. This will also take up the time of team members who could be doing more meaningful work.
To avoid high turnover rates, ensure you provide adequate onboarding and training to new team members. Treat your team members as humans, not numbers on your financial reports; this will help them feel valued and more likely to stay at your company long term. Help your staff grow and learn to motivate them and encourage productivity.
Identify individual team members’ strengths so they can work on projects that match their strengths. It will benefit your retention rate if you put in the groundwork to train your employees well and offer them the support they need to do their job.
Better employee retention = better revenue per employee.
2. Automate processes
Increasing your RPE can go hand in hand with regular analysis of your company structure.
Are there processes that you can automate? Are team structures still efficient? Keeping a close eye on the day-to-day workings of your business can help you align your company structure to improve your RPE.