Revenue per Employee
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What Is Revenue Per Employee?
Revenue Per Employee (RPE) is a measurement of how much revenue each employee generates for your organization. RPE measures the efficiency of a company’s revenue model and how efficiently the company is using its human resources. The higher the ratio, the higher the productivity. It also suggests that companies with high RPE ratios are using their human capital wisely by developing workers who are very productive.
Why Is It Important to Understand Revenue Per Employee?
RPE helps evaluate your employees’ efficiency and productivity. In addition, this ratio helps you evaluate historical changes within your organization.
Efficiency and productivity. The more efficient and productive your organization is, the less likely you are to experience losses (e.g., lack of profit, turnover) and more likely to experience an increase in profits, positive organizational culture, and retention. Increased profits allow organizations to expand their operations and improve the livelihood of its employees.
Historical changes. Understanding your organization’s past allows you to enhance its structure, operations, growth, and profitability. If RPE decreases over a period of time, you know that efficiency and productivity are declining, and can take action. Perhaps your hiring practices, training, or retention program need to be revised.
How HR Can Use Revenue Per Employee
- Productivity has been tagged as the single most important metric available to determine employee productivity. HR can share this metric on a quarterly basis with a CEO and illustrate the initiatives they are working on to impact productivity.
- Transferrable. RPE can be used in any business in any industry. It is not tied to any one sector; however, when making comparisons it is best to compare the RPE of companies within the same sector (energy, financial services, etc.).
- Workforce planning. HR influences the largest cost center: labor. When revenues take a hit or skyrocket, RPE can be useful in trimming or adding to the workforce in a mindful manner.
- Litmus test. RPE can be used to gauge the key objectives and goals of HR departments. HR professionals can filter through where their efforts will lead to a positive return to RPE and thereby prioritize initiatives. Once a positive return is established, the likelihood of having budgets approved for HR initiatives will increase.
How to Calculate Revenue Per Employee
To calculate RPE, divide your organization’s total revenue by the current number of employees.
Current Employees (FTEs)
- Learn total revenue. Find the total revenue your business generated for the calendar year (e.g., the previous year).
- Number of employees. Gather the total headcount of employees you had in the same calendar year as your annual revenue figure.
Example of RPE Calculation
ABC Corporation produces parts for microwaves. The finance team reports that ABC’s annual revenue was $800,000 last year, and during this period the company had a total of 400 employees. Therefore:
$800,000/400 = $2,000 Revenue Per Employee
How to Apply Your Revenue Per Employee Number
The RPE metric is best used in comparison to other companies in the same industry, as well as in conjunction with other financial metrics such as an organization’s turnover rate. Locate other organizations’ RPEs in financial statements and annual reports, or look for benchmark reports online. Then apply it to improve operations and educate investors.
Utilizing the RPE ratio allows you to recognize organizational challenges and act to mitigate them, increasing overall productivity and increasing RPE.
Organizations may improve their RPE by implementing HR strategies that improve employees’ productivity, such as better use of technology, improving workplace conditions, enhancing training and development, or strengthening communication protocols.
If your organization relies on or is looking for investors, RPE can provide a snapshot of just how healthy (or not) your organization is when compared to others in similar industries. While this ratio doesn’t tell the whole story, it is useful.
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Wendy is a HR professional with over 10 years of HR experience in education and health care, both in the private and non-profit sector. She is the owner of KHRServices, a full service HR management agency. She is also SHRM and HRCI certified, serves as a HRCI Ambassador, and voted 2021 Most Inclusive HR Influencer.
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Milly Christmann is a high energy, operationally oriented talent management leader with extensive expertise in human resources, sales management, service and operations. She is recognized for collaborating with leaders to achieve their business goals by unleashing the power of an engaged workforce. By using process improvement, technology and strong, impassioned people skills as well as by attracting, developing and retaining top talent, Ms. Christmann drives change that matters.