How effectively do employees generate revenue?

To know the effectiveness of your employees you need to have an idea of revenue/ employee. With the help of this formula, you can calculate the revenue that is generated by an average employee of the company. This ratio helps in understanding the mentality of employees and knowing what your business needs to adopt to lead the market. You may visit fortressone.net to read more such types of blogs.

The formula for Revenue for each Employee

The technique for finding RPE is given below:

Revenue for one Employee = Revenue / Current Number Of Employees

Analysts generally use the variation in this formula to use the net income divided by the count of employees. 

Significance Of Revenue for the Employee

Most companies spend a large sum of money on salaries and benefits for employees. Also, business success is measly driven by the workforce working in the company. Companies continuously look for higher RPE which points towards a more efficient and great company. You can use the RPE ratio for analyzing the companies which are operating in service industries. 

In order to analyze a given firm you need to use this formula in collaboration with other financial citations. Moreover, you can only compare the ratio with other companies engaged in that field. You have to consider that every industry faces a varying cost structure. For example, a company dealing with labor will report a lower revenue per employee when we will compare it with a technology company. 

Examples

  • Company Profitability

To generate profit, a company needs to consider various factors. 

  1. Assume that the only expenditure that a company face is a salary
  2. Suppose each employee earns 15,000 dollars in any company. 
Firm AFirm BFirm C
Revenue$520,000$125,580$3,000,500
Employees354350
Expenses $525,000$60,000$5,250,000
Profit/(Loss)($5,000)$65,580($2,249,500)

With every employee earning 15,000 dollars, we can assume that company ‘B’ is running in the profit.

  • Hypothetical Competitor Analysis

When we only have the value of revenue and the count of employees of different companies operating at the same platform then you should use the quantity=  revenue/ employee to find out which company is more productive. 

Firm AFirm BFirm C
Revenue$520,00$125,580$3,000,500
Employees354350
R/E$14,857.14$31,395.00$8,572.86

Here R/E = Revenue by employee 

From the above table we can conclude that Company B is the most efficiently productive company as its RPE is $31,395. 

Summary

The profit of your business depends on how much revenue tour employees generate. Knowing the effectiveness at which your employees generate revenue is very crucial to earn a good profit from your business. You need to consider the factors on which the revenue of your employees depends. You can refer to the above examples in order to calculate the revenue for every employee.