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What is revenue per employee?

Revenue per employee definition

Revenue per employee is an important metric used to define the revenue generated by each individual working at a company. It is used as an efficiency ratio helping to estimate the productivity of the average employee.

For many businesses, salaries and employee benefits are the largest expenses. However, the workforce is one of the most important in driving the success of any company. Therefore, business owners are willing to achieve a high RPE (revenue per employee) to offset the business expenses for employee payments.

A higher RPE serves as one of the indicators of an efficient and productive business. This ratio can be useful for analysing companies working in similar industries. Companies with high revenue per employee ratios often prove to be profitable.

There are several factors to consider when estimating the profit per employee ratio:

  • The industry. As labour demand varies from one industry to another, it is reasonable to compare the results of companies working in one particular sphere, i.e. direct competitors.

  • Employee turnover. RPE ratio is also affected by a company’s employee turnover rate. Turnover here means the percentage of workforce that leaves or is fired from the company within a year and should be substituted. 

  • The business age. Young companies still have relatively small revenue per employee in comparison with more mature businesses. The growing company has to grow its revenue faster than its labour costs, gradually increasing the RPE ratio.

How to calculate revenue per employee?

Revenue per employee is calculated as total company’s revenue divided by the current number of employees, roughly measuring how much money each specialist working at a particular company brings to the firm.

The revenue per employee formula looks like this:
Revenue per employee definitionFor example, if we estimate the productivity of an average employee at Amazon, we can calculate the revenue per employee by scanning the company’s annual review.

Taking the data from the latest Amazon’s annual earnings report, we see that the company’s revenue in 2019 comprised $280.522bn. Meanwhile, the company’s team consists of 840,400 employees. Calculating the revenue per employee ratio for Amazon we get: $280.522 bn/840,400 = $333,795.

Let’s compare it with another big retailer Walmart. The company reported $523.964bn in revenue. Walmart employs 2.2 million associates around the world. Therefore, the company’s revenue per employee is: $523.964 bn/2.2 m = $238,165. 

This means that Amazon has a higher RPE ratio than Walmart.

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