What is revenue per employee?
Revenue per employee (RPE) is a financial metric that measures the average profit each employee contributes. Revenue per employee allows organizations to determine the efficiency, productivity, and profitability of each employee and the company as a whole.
To calculate revenue per employee, divide the total revenue by the number of full-time employees.
Revenue per employee= revenue/number of employees
Generally, a higher RPE indicates greater productivity and work efficiency.
Why should HR leaders care about revenue per employee?
RPE is a critical piece of the HR puzzle. RPE data, combined with income per employee and other metrics, provides HR with the necessary information to evaluate people’s productivity and financial value. This data enables HR leaders to identify ways to effectively improve HR processes that will cascade down to elevate the employee experience.
What can HR leaders do to implement revenue per employee effectively?
To incorporate RPE data to support overall company productivity, HR leaders can:
- Take a holistic approach. RPE on its own isn’t so helpful. To leverage RPE, HR professionals must zoom out and analyze it in conjunction with other factors over time. With this holistic understanding of revenue per employee, HR can better determine how to boost people’s productivity, engagement, and retention.
- Make sure the data is reliable. Various external factors could skew the data, such as the company definition of a full-time employee or different product/service pricing in diverse regions and locations. The industry is another significant factor to consider. RPE is typically more applicable to companies that primarily spend on labor (SaaS companies, for instance) than companies that spend chiefly on equipment, like manufacturing companies.
- Benchmark within the same industry. RPE illustrates how effectively a company engages its people. Thus, it’s critical to compare only with other companies in the same industry, where people work in similar fields.
- Utilize RPE to assess HR practices. Pinpointing the root cause of low RPE can be difficult. Yet, because HR plays such a pivotal role within organizations when RPE is alarmingly low, it’s an indicator that HR should step in and adjust its practices.
Why should revenue per employee be a part of modern HR strategy?
According to Deloitte, labor is one of the leading costs in many companies today. So, it’s a must that HR analyze the cost-benefit of compensating a specific number of people. Understanding the mechanics of RPE and how to increase it enables HR professionals to help people work more productively. In turn, this allows the company to increase its revenue.