In the business world, financial metrics of all kinds are vital to understand if you want to know how effectively a business is performing. One of these metrics is revenue per employee (RPE), which provides valuable insights into operational efficiency, financial health and overall productivity.
In this article, we explore in detail what RPE is and why you should start measuring it in your business.
What is RPE?
RPE is a metric that calculates how much revenue a business generates for every employee working for it.
To calculate the RPE of your business, divide your total revenue by the number of your employees — the resulting figure shows you the average amount of revenue each employee contributes to the business.
For example, if a large company has £10 million in revenue and 100 employees, its RPE would be £100,000.
Why is revenue per employee helpful?
RPE — a simple calculation to work out if you have the right figures — is helpful for many reasons:
- Comparing businesses within the same industry. By comparing your RPE with a competitor’s, you can evaluate whether you have an edge in the market because of your productivity or whether you need to improve.
- Determining employee pay. RPE is a useful tool to help determine how much you should pay your employees. If your business has a high RPE, you may be able to offer higher salaries and better benefits to your employees, which is a great way to attract and retain the best talent in the industry.
- Providing investors with a clear picture of business performance. RPE is a key metric that investors use to determine a business’s overall efficiency and productivity. A high RPE is, therefore, essential if you want to get them on board.
How to improve your revenue per employee
So, RPE is important to determine your productivity against your competitors, gain and retain talent, and entice investors to your business. What should you do if you’re disappointed with your business’s performance, and what can you do to improve your RPE?
First, you can increase employee productivity with multiple strategies. For example, you can invest in employee training and development to improve skills, encourage them to prioritise tasks to work smarter, or just make sure they’re taking breaks, so they’re well-rested to work hard.
Don’t forget to improve motivation by offering good employee benefits and fostering a healthy work environment, too!
Second, think about how you can streamline your business processes to eliminate waste, reduce costs and increase efficiency. So, automate routine tasks, reduce paperwork and simplify workflows to free up employees’ time and increase their productivity.
Finally, you can increase your RPE by improving the customer experience — providing exceptional customer service can help increase customer loyalty and retention, which in turn can bring in more revenue without you having to do much to increase your employees’ productivity.
To improve your the customer experience at your business, you can:
- train employees to provide excellent customer service
- respond quickly to customer inquiries and complaints
- use technology, like chatbots, self-service systems and mobile apps to help customers quickly
- use customer data to personalise the experience.
RPE can show you if your employee productivity is where it should be, but it’s up to you to determine how to improve it. It’s a delicate task that needs to be done right — to avoid upsetting employees, for example.
At Spark Accountants, we’re interested in the best solutions to the most difficult tasks. Don’t hesitate to get in contact with us.