Start Up Tip - Revenue Per Employee
Comments (0) by Sean Burke
In my first entrepreneurial venture, we grew fast - real fast. Clients came to us in droves, phones rang and rang with not enough people to answer them. This lead to voicemail boxes piling up with requests for technical support. We struggled to hire fast enough to keep up with demand…so we thought.
After our growth stabilized, however, we started talking to more experienced leaders and learned about a measure that can help all companies (revenue per employee). See when we grew fast - so did our employee base and payroll. In fact our payroll many months was higher than our revenue. That killed our cash and nearly forced us to make some tough decisions.
If we had kept an eye on our revenue/employee we could have prevented many of these issues. Revenue per employee helps you determine your productivity while also giving insight on when it is the right time to hire new staff. Here is how to make it work for you:
- Think about a publicly traded company that does work very similar to you (if you are creating something brand new this maybe tough but try to get a close approximation)
- Go to Yahoo Finance or Google Business - or a source that you are comfortable using to look up the financial results of companies you know
- Look through their financial results until you find their revenue/employee
- Calculate your revenue/employee by dividing your total number of employees into your revenue. (i.e. Revenue =$5M, employees = 45 - rev/empl = $111,111)
- If your number is lower than the company in comparison don’t hire more people until you can get it inline.
I know it’s not rocket science but it will help you keep cash inline with sales so the doors stay open.
