Revenue Per Employee Ratio Formula

Revenue Per Employee Ratio Formula (Table of Contents)

• Revenue Per Employee Ratio Formula
• Revenue Per Employee Ratio Calculator
• Revenue Per Employee Ratio Formula in Excel (With Excel Template)

Revenue Per Employee Ratio

Analyst always looks to analyze company financially as well as operationally. It must be remembered that the operational ratios impact the financial ratio as well.

As legend investor warrant buffet says, operational efficiency leads to more profit. So, it becomes imperative to analyze company operationally also.

As the employee is an integral part of every business, it makes more sense to analyze operational efficiency by analyzing revenue per employee ratio. It is the easiest ratio for operational analysis and easy to interpret also.

Revenue Per Employee Ratio Formula

Revenue per employee calculates the number of sales generated by one employee or sales done by each employee. This is one of the important measures of performance of employees of the company. It is an easy indicator of productivity & efficiency of an organization’s personnel. It also indicates how effectively an organization is utilizing its human resources.

Revenue Per Employee Ratio Formula –

Generally, the number of employees keeps changing over the period of time. Therefore, it is good practice to use an average number of employees during a particular period. A number of employee figure can be found into an annual report of the company. The figure for sales revenue can be taken from the income statement of the company.

From the above formula, it can be easily understood that revenue per employee is easy to calculate and interpret. By common sense, one can say higher the revenue per employee figure is, the better it is. Less revenue per employee shows less efficient operation.

But revenue per employee varies in different industries according to a need of labor requirement. Labour intensive industries will be having less revenue per employee, whereas less labor-intensive industries will be having high revenue per employee.

Examples & Explanation of Revenue Per Employee Ratio Formula

Below table shows, revenue per employee of labor-intensive and less labour-intensive industry.

As we have discussed earlier, we can see a company’s classification as per the industry. The less labour-intensive company generates more revenue per employee. This is because of industry-specific advantages and variations in the operation.

Analyst generally compares revenue per employee with the median of companies into the same industry. In less labour-intensive industry, Company MNO operates at the highest revenue per employee because its operations are more efficient than its peers. It can be said that each employee in the MNO company more efficient than the peer set. Same is the true for labour-intensive industry.

Significance and Use of Revenue per employee Ratio Formula

Revenue per employee is an absolute figure in terms of given currency; therefore, it may look less useful in an analytical sense. For interpretation purpose revenue per employee, the figure should be compared with the historical data of the company or industry to see any deterioration or improvement. It must also be compared with the other peer companies operating in the same industry. This comparison across the industry and over time will give usefully understanding of the productivity of personnel.

Revenue per employee might be affected by the age of a company. New companies usually have small revenues and these are usually in the process of hiring more employees to fill positions. Therefore, their revenue per employee is lower than the well-established companies.

Sometimes earning per employee can be calculated by using net profit, instead of sales revenue, in the above-stated formula. This also gives insights into the productivity of employees.

As the ratio is in the absolute figure, by itself, it is of little use without any benchmark or frame of reference, hence it should be read against the historical ratios for same industry or company over a number of past years to be able to see if the ratios are falling or rising. This would help to show declining or improving the level of employee productivity. Then again, the ratios should be compared with other industry peers and how they have performed over the past years.

Revenue Per Employee Ratio Calculator

You can use the following Revenue Per Employee Ratio Calculator

Revenue Per Employee Ratio Formula in Excel (With Excel Template)

Here we will do the same example of the Revenue Per Employee Ratio formula in Excel. It is very easy and simple. You need to provide the two inputs i.e Revenue and Number of Employees

You can easily calculate the Revenue Per Employee Ratio using Formula in the template provided.

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This has been a guide to a Revenue Per Employee Ratio formula. Here we discuss its uses along with practical examples. We also provide you with Revenue Per Employee Ratio Calculator with downloadable excel template. You may also look at the following articles to learn more –

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