REVENUE PER

EMPLOYEE RATIO

@Ravi Nishant
 What is Revenue Per Employee ?

Revenue per employee calculates the number

of sales generated by one employee or sales
done by each employee.

•An 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 hence it becomes imperative to analyze the company
operationally also.
Revenue Per Employee Ratio Formula

•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.
•Generally, the number of employees keeps changing over period of
time. Therefore, it is good practice to use an average number of
employees during a particular period.
 Examples & Explanation of Revenue
Per Employee Ratio Formula
Labour Intensive Industry

Net Sales Number of Revenue Per

Company Name
(million $) Employees Employee ($)

Company A 25,000 80000 3,12,500

Company B 46,000 90000 5,11,111

Company C 23,000 50000 4,60,000

Company D 39,000 75000 5,20,000

Company E 90,000 180000 5,00,000

 Examples & Explanation of Revenue
Per Employee Ratio Formula

Less Labour-Intensive Industry

Number of Revenue Per

Company Name Net Sales (million $)
Employees Employee ($)

Company PQR Ltd 20000 18000 11,11,111

Company MNO
5000 1108 45,12,635
Ltd

Company TPU Ltd 6000 3000 20,00,000

Company KNO Ltd 18000 15000 12,00,000

Company APP Ltd 2000 1500 13,33,333

 Explanation

•The less labor-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 labor-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 is more efficient
than the peer set.

•Same is the true for labor-intensive industries.

 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 purposes 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.

-Sometimes earnings 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.
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