Revenue Per Employee

Updated July 25, 2023

What is the Revenue Per Employee Ratio?

The term “Revenue per Employee (RPE) Ratio” refers to the financial metric that measures the dollar amount generated by each employee of a company.

In other words, this metric assesses how well a company is able to leverage its manpower in order to make more revenue. It is usually more useful for the manpower (human capital) intensive industries.

Formula

The RPE ratio formula can be expressed as net sales divided by the average number of employees during the year. Mathematically, unit contribution margin is represented as,

The average number of employees is the average number of employees at the start and at the end of the period.

Examples of Revenue Per Employee Ratio (With Excel Template)

Let’s take an example to understand the calculation of the RPE Ratio in a better manner.

Example #1

Let’s take the example of a small IT firm in the US to illustrate the RPE Ratio’s computation. The firm clocked total sales of $15.0 million during 2018. The firm started the year with 5,000 employees; it hired 1,000 while 200 left during the course of the year to end the year with a total number of employees of 5,800. Calculate the revenue per employee of the company in 2018.

Solution:

Average No. of Employees is calculated using the formula given below

Average No. of Employees = (Opening No. of Employees + Closing No. of Employees) / 2

• = (5,000 + 5,800) / 2
• = 5,400

Revenue Per Employee Ratio is calculated using the formula given below

Revenue Per Employee Ratio = Total Sales / Average No. of Employees

• = $15.0 million / 5,400
• = $2,778.78

Therefore, the firm earned ~$2,778 per employee during the year 2018.

Example #2

Let’s also take the example of Apple Inc. in order to illustrate the computation of the RPE Ratio. During 2018, Apple Inc. registered net sales of $265.60 million with approximately 132,000 full-time equivalent employees. Calculate the revenue per employee ratio for Apple Inc. during 2018.

Solution:

Revenue Per Employee Ratio is calculated using the formula given below

Revenue Per Employee Ratio = Net Sales / Average No. of Employees

• = $265595 / 132,000
• = $2.01 million

Therefore, Apple Inc. generated $2.01 million per employee during 2018.

Source: Apple Inc. Balance Sheet

Example #3

Let’s take the example of Walmart Inc. and show the calculation of the RPE Ratio for it. Walmart Inc. earned a total revenue of $500.34 billion in the year 2018, and the company employed approximately 2.3 million employees globally during the period. Calculate the revenue per employee for Walmart Inc. during 2018.

Solution:

Revenue Per Employee Ratio is calculated using the formula given below

Revenue Per Employee Ratio = Total Revenue / Average No. of Employees

• = $500.34 billion / 2.3 million
• = $0.22 million

Therefore, Walmart Inc. generated $0.22 million per employee during 2018.

Source: Walmart Annual Reports (Investor Relations)

Advantages and Disadvantages

Some of the advantages and disadvantages mentioned below:

Advantages

Some of the major advantages are:

• It helps in assessing the operational efficiency of a company and plan for further improvement.
• It aids in deciding the employees’ salary and wages such that each employee positively contributes to the company’s profit.

Disadvantages

Some of the major disadvantages are:

• The metric can be misleading in the case of companies with high employee churn rate during a period as it would end up wrongfully inflating the RPE Ratio.
• This metric can be used for peer comparison with companies working with a similar business model and in the same industry.

Important Points to Note About Revenue Per Employee Ratio

Some of the important points about the RPE Ratio are:

• Usually, companies in their early days tend to have lower revenue per employee ratio than most of the established companies, who successfully leverage their human capital.
• Companies always prefer a higher value of the RPE ratio because it indicates that the subject company exhibits greater productivity.

Conclusion

So, it can be concluded that the performance metric or key performance indicator – revenue per employee ratio, is a very useful measure of efficiency that guides the management to either hire or lay-off employees. However, there are a few limitations that need to be addressed in order to draw the full benefits of the ratio.

1. Criteria of Revenue Recognition
2. Key differences between Revenue vs Turnover
3. Accounts Payable Turnover Ratio
4. What is the Gross Profit Ratio?