True and agreed. I was looking at it from pure cost perspective. For example, if your revenue is $1 million and you have 2 FTEs who cost $200k per year, then you Revenue per FTE $500k, and Revenue per Staff Cost is 5x. Whereas, if you hire 4 FTEs for $100k to generate $1 million, now your Revenue per FTE looks worse, but your Revenue per Staff cost is better.
It would be interesting to show the revenue metric per $1 of payroll. The problem with the Revenue per FTE assumes that all FTEs cost the same. So if you want to see cost efficiency through this metric, it is not accurate. Are you able to generate Revenue per $1 of Payroll for all of these companies?
That’s a really cool way to look at it. I’m going to start incorporating it into my reporting packages.
I will say though that even if people cost less, the more people you add the more administrative burden (a hidden cost) and communication slowdown (another hidden cost) you add to the system. Each person is a node within the system and the more nodes the slower information moves and stuff gets done. So it’s not always better to have more employees at the same price
Thanks for the shoutout, CJ! Big fan of this metric. For global folks or those who rely on 3rd party vendors, you might tweak the metric to be ARR per compensation $. It gets harder to compare against peers, but gives you “credit” for things like hiring in lower cost geos or brining roles in-house that you used to outsource.
Revenue per employee is one of my favorite all time metrics. It tells you a lot about both a companies prospects and its culture. When I was doing global sales and delivery, it's a metric I calculated for every customer, prospect and competitor. However, it's pretty industry specific. For example, utilities and banks have high regulatory requirements, and therefore tend to to have a lot of bodies. But it's useful for comparing banks in US, France and Brazil, for example, in addition to just banks in Brazil. Not so useful comparing banks to retail. However, for retail, comparing Amazon or Mercado Libre to Home Depot, or Walmart to Liverpool in Mexico, Revenue per employee rocks.
You could probably do a whole 'nother post on Apple, and how their structure completely slays this metric, aspects of which Hadi Radian and Kyle Poyar have noted below.
Nice piece, and thanks for the link to Growth Unhinged!
Agreed that revenue needs a relative measure. However, per employee may not be the right relative 😉
As most SaaS product companies are now getting built with global workforce - and the cost per employee is much lower (typically 1/2 or 1/3) of US payroll. Revenue per employee in such a case is not a great metric. The right one might be SaaS margin
True and agreed. I was looking at it from pure cost perspective. For example, if your revenue is $1 million and you have 2 FTEs who cost $200k per year, then you Revenue per FTE $500k, and Revenue per Staff Cost is 5x. Whereas, if you hire 4 FTEs for $100k to generate $1 million, now your Revenue per FTE looks worse, but your Revenue per Staff cost is better.
You’re on to something. I’m with you. Great points
Thank you CJ
It would be interesting to show the revenue metric per $1 of payroll. The problem with the Revenue per FTE assumes that all FTEs cost the same. So if you want to see cost efficiency through this metric, it is not accurate. Are you able to generate Revenue per $1 of Payroll for all of these companies?
That’s a really cool way to look at it. I’m going to start incorporating it into my reporting packages.
I will say though that even if people cost less, the more people you add the more administrative burden (a hidden cost) and communication slowdown (another hidden cost) you add to the system. Each person is a node within the system and the more nodes the slower information moves and stuff gets done. So it’s not always better to have more employees at the same price
Thanks for the shoutout, CJ! Big fan of this metric. For global folks or those who rely on 3rd party vendors, you might tweak the metric to be ARR per compensation $. It gets harder to compare against peers, but gives you “credit” for things like hiring in lower cost geos or brining roles in-house that you used to outsource.
Totally! I also like to tally our “effective” headcount, which incorporates contractors and third parties.
Great newsletter edition!!
Thanks Brett
Revenue per employee is one of my favorite all time metrics. It tells you a lot about both a companies prospects and its culture. When I was doing global sales and delivery, it's a metric I calculated for every customer, prospect and competitor. However, it's pretty industry specific. For example, utilities and banks have high regulatory requirements, and therefore tend to to have a lot of bodies. But it's useful for comparing banks in US, France and Brazil, for example, in addition to just banks in Brazil. Not so useful comparing banks to retail. However, for retail, comparing Amazon or Mercado Libre to Home Depot, or Walmart to Liverpool in Mexico, Revenue per employee rocks.
You could probably do a whole 'nother post on Apple, and how their structure completely slays this metric, aspects of which Hadi Radian and Kyle Poyar have noted below.
Nice piece, and thanks for the link to Growth Unhinged!
This was a very interesting read. How do you think revenue per employee changes for AI assisted services as they would have some human in the loop?
Agreed that revenue needs a relative measure. However, per employee may not be the right relative 😉
As most SaaS product companies are now getting built with global workforce - and the cost per employee is much lower (typically 1/2 or 1/3) of US payroll. Revenue per employee in such a case is not a great metric. The right one might be SaaS margin
((revenue - labor costs to deliver ) / revenue) * 100
CJ, another killer write-up. Appreciate it!