A Detailed Guide On Revenue Per Employee Benchmark

If you are a business that employs staff and operates payroll, you know that payroll might be one of the largest costs your business incurs. It is therefore important to make sure that this cost is as efficient as possible. One of the most crucial yet underutilised HR indicators, revenue per employee, gauges the success of your employees and their financial contribution to your company, which is directly related to business productivity. Or, to put it another way, it can determine whether your staff is bringing in enough money to sustain your company.

This article explains what revenue per employee is, what constitutes a good revenue per employee number, and how much revenue per employee your small business should aim for.

What is Revenue per Employee?

Simply said, dividing your annual sales by the number of employees will give you your revenue per employee. This provides you with a quick summary of how much money each person makes for your company. This indicator helps you see how you stack up against businesses that compete with you in the same market.
A business that has a higher revenue per employee is probably more efficient and successful. The value of the revenue per employee can also be influenced by a number of external factors, such as

• Employee turnover
• Age of the organisation
• The industry you operate in

Due to ongoing training and recruiting expenses, a company with a high staff turnover is probably less profitable. In the beginning, start-ups are predicted to incur higher costs than typical small businesses.

What is the Importance of Measuring Revenue Per Employee?

In general, if you observe a greater revenue per employee figure, this means your company is probably more lucrative and getting the most out of your staff.

When comparing your company’s revenue per employee to that of other firms, it’s critical to pick smaller companies specifically rather than small businesses in general to ensure an accurate like-for-like comparison. This is due to the fact that some businesses are more labour-intensive by nature than others, which lowers their revenue per-employee ratio.

A higher revenue per employee, which shows that your people are working more productively than other organisations, is what you want to see when comparing your company to others in your industry. Additionally, you should consider their entire revenue and workforce count because these factors will undoubtedly influence the outcome.

What is a Good Revenue per Employee?

The average UK company makes £118,000 per employee in revenue. But we must keep in mind that this figure is an average derived from all small enterprises nationwide. This covers everything from steel and energy manufacturers to neighbourhood independent shops, pubs, and everything in between.

This is why, while examining your particular organisation, you should contrast your revenue per employee with that of your main rivals or businesses in your industry. This will make it easier for you to calculate your benchmark for revenue per employee. Once your business has calculated the worth of revenue per employee, it may utilise this data to inform investors and enhance operations.

What Insights HR can get from Revenue per-Employee Calculations?

This revenue per employee calculations can be used by an HR leader to gather important data, such as:

Find out how your team is performing overall

It won’t let you examine the performance of individual team members, but it will gauge how well your team as a whole performs and how effectively you are utilising their skills. You can adjust HR strategies to enhance employee productivity by being aware of the amount of income per employee that your company is producing. Managing workloads and stress levels across your staff, for instance.

Recognize Your Areas of Improvement

You’ll be able to discover where you stand out and where you might be lacking when you compare your data to that of other companies in the market. For instance, you may need to evaluate how you could increase motivation if you notice that your rivals are introducing HR initiatives to boost productivity in their staff.

Estimate the number of employees you’ll need to expand

Your revenue per employee data can assist you to figure out whether you could make the same amount of money with fewer people or how many more you’d need to hire to achieve X% growth volume. You may determine the influence that your most recent hires have had on your company and how many more you’ll need to continue expanding by looking at your previous revenue per employee number.

Consider your staff an asset, not simply a cost

On their cash flow statements, the majority of financial measurements count personnel as an expense for the company. Understanding the worth of revenue per employee, on the other hand, will enable you to see how much each employee contributes to the company rather than how much each one costs you.

Outsource non-productive departments

Sometimes deciding between keeping in-house staff or outsourcing work such as outsourcing your bookkeeping or marketing departments could be the key to improving business productivity and profitability.

How much money does the Typical UK Company make per Employee?

Businesses in the UK make c£118,000 on average from each employee. The majority of UK firms may not find this statistic particularly relevant, even though economists and politicians using it to boast about the UK’s productivity may find it interesting. The £118,000 covers every industry in the UK, from the manufacture of steel and power to your neighbourhood pub or library and everything in between.

Taking a look at director-owned businesses with just one or two employees all the way up to massive international organisations with 500+ employees, Figure 1 starts to break down the data by business size.

This information makes it clear that revenue per employee has steadily increased up to Band Four with 10–19 people. SMEs can be most productive in this range and produce more income per worker than their larger rivals in Bands 5–7.

The lower management requirements in smaller businesses, where the bulk of personnel can sit in productive operational or revenue-generating jobs, are principally responsible for this productivity.

Sector Division — Revenue per Employee Cost

Once more, even while this information starts to address the subject, it may not be helpful to an entrepreneur in deciding whether to hire more staff or in comparing their company to others in the same industry.

To get the answer to this, we must delve deeper into the data and consider the following questions: How much revenue do companies in my industry earn per employee, and could my company generate enough revenue with an additional employee to cover the operational expense? Alternately, should the company seek for operational efficiencies before committing to yet another employee?

Figure 2 shows how revenue per employee varies across industries. Businesses that depend heavily on labour, like restaurants and bars, typically generate only £37.5k and £48.5k per employee, while industries that don’t depend on labour, like online retail or software sales, generate £150.5k and £147k, respectively.

How will you apply this knowledge?

In order to respond to this topic, let’s look at a market that Clear House Accountants are very familiar with: legal, accounting, and bookkeeping services.

In the industry we work in, a small business with 10 to 49 employees generates an average annual income per employee of £91.6k. This image, which is almost in the middle of the table, illustrates how people rather than computers are used by accounting firms and legal firms, which depend on human capital with specialised knowledge.

With this £91.6k in mind, an accounting firm with, let’s say, 30 people should produce c£2.7m in income annually (£91.6k x 30 employees).

Assume that a hypothetical accounting firm has 30 employees but only brings in £2.5 million annually. The management team of the company wants to expand, but they’re unsure whether to spend money on a new employee or an IT system that will make their job easier.

When considering revenue per employee, it becomes evident that the company is only producing £83.3k (£2.5m/30 people) in revenue per employee, which is over 10% less than the sector average.

This might assist in informing management decisions by indicating that they might search for more business efficiency before hiring another person and possibly consider investing in the new IT system.

Conclusion

In conclusion, revenue per employee is a crucial indicator to track in order to compare your small business to others in the same sector and have a better understanding of how the productivity of your personnel affects your business’s overall financial performance.

We at Clear House Accountants are aware that without data, you might as well be taking a chance. Good data can assist you in making the best business decisions. We collaborate with our clients to make sure they have the most accurate information about their businesses, including up-to-date financial data that is accessible via the cloud at the touch of a button whenever and wherever they are.

FAQs

How much revenue does each employee generate?

Divide the total income of the company by the number of employees it currently has to determine the revenue per employee. A corporation should aim for the largest revenue per employee ratio feasible since a higher ratio denotes more productivity, which frequently correlates to higher profitability for the company.

What is the Estimated revenue per employee?

The ratio known as “revenue per employee” calculates an organisation’s total income by the number of employees it currently has. It gives a ballpark figure for how much money an organisation makes per employee. When comparing revenue per employee year over year, this measure is useful.

What is a good revenue per employee ratio UK?

The average UK company makes £118,000 per employee in revenue. But we must keep in mind that this figure is an average derived from all small enterprises nationwide.