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Why Businesses Need To Focus on Higher Revenue per Employee

September 20, 2021 | Marisa Iacobucci  
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It’s easy to focus so much time and energy on increasing employee headcount that you overlook another critical growth factor: revenue per employee—also known as net income per employee.

Fast employee growth sounds like a good thing for your company—and it can be—but that’s not always the case. In fact, if your revenue per employee isn’t strong, it could result in serious setbacks and concerns down the road.

There was a day and age when employee count was a badge of honour. The companies with the most employees were generally considered to be the most successful.

But all of this is changing. Today, the employee count is nothing more than a vanity metric. Instead, many of the most successful companies are striving for lower headcounts and higher revenue per employee.

Want to learn more about workforce planning? Check out our Ultimate Guide to Workforce Planning.

Now that we have the basics out of the way, let’s turn our attention to why it’s important to focus on higher net income per employee.

A lineup of diverse employees in an office

1. Fewer Employees = Faster Decisions

You know what we’re talking about here. The more employees a company has, the more difficult it is to make fast decisions.

Conversely, smaller companies and smaller teams are much more agile. They can make quick decisions and adjust on the fly, which can save both time and money.

This doesn’t mean that large companies can’t double as agile organisations. However, it’s much more difficult to do so as the employee count grows.

2. Cost Savings

It makes sense to believe that more employees will result in more revenue. After all, this allows your company to get more work done. Or does it?

There are many ways smaller companies are able to save money by cutting costs:

  • Salary and benefits: The more employees you have, the more money you pay out in salary and benefits. And as you know, these costs have a tendency to rise year over year.

  • Training: The numbers vary based on the source, but most agree that the average cost of training a new employee is in the $2K range. That doesn’t consider the fact that some employees won’t make it out of training and others may require additional training.

  • Office space: Even with remote work on the rise, this is still an important consideration. As your company grows, you may find that your space is no longer big enough. And for remote workers, the cost of equipping their home office can quickly add up.

  • Office equipment and supplies: From computers and printers to paper and envelopes, large teams quickly burn through equipment and supplies. 

3. Flexibility

As a company grows, flexibility generally dwindles. In some cases, it disappears altogether. This is the opposite of an agile organisation (see above).

A smaller team has the flexibility to get more done, which can result in a higher earnings per employee. It also leads to less friction across departments, thus reducing challenges and stress.

Think about it this way. In a large company with thousands of employees, a new hire will have to go through many steps to implement a new procedure or strategy.

With a lower headcount, there’s more flexibility to make instantaneous changes with the idea of tweaking and refining on the path forward.

4. High-Level Contributions From All Employees

You’ve seen it before and you’ll see it again. The bigger the company, the greater chance there is of hiring and retaining “dead weight.”

In other words, some employees neglect to carry their own weight. And worse yet, this often happens because they continually slide under the radar. There’s no accountability.

With a lower headcount, every employee has the opportunity to make high-level contributions. When that happens, you’ll find that your smaller team is capable of outperforming much bigger competitors.

Two employees collaborating on a project

5. More Efficient Collaboration

Did you know that roughly 75% of employers rate collaboration and teamwork as very important?

While that may be true, it doesn’t mean that business leaders always hire with this in mind. A common example is those that overlook the importance of a higher than average revenue per employee.

It’s natural for larger teams to struggle more with collaboration than smaller ones. This is particularly true in today’s day and age of remote work.

When you focus on higher revenue per employee, your company will naturally remain “lean and mean.” This will work in your favour in regards to communication and collaboration, whether in the office or working remotely.

Learn more about Vena’s integrated revenue planning software.

Important Questions To Answer

By now, you realise how you can benefit from focussing on higher revenue per employee. However, you may still have some questions. Here are a few of the most important to address:

  • What is your current employee headcount?
  • Are you in a position to reduce the size of your workforce?
  • What is your current net income per employee?
  • What’s the best way to calculate net income per employee and revenue per employee?
  • What steps can you take to improve your revenue per employee
  • How does your revenue per employee stack up against other companies in your space?
  • What is your revenue per employee ratio? Is there room for improvement?

Remember, it’s not enough to assume that your revenue per employee is strong. You need to know your current numbers while tracking changes as your revenue and headcount fluctuate.

Final Thoughts

When you focus on higher revenue per employee, it’ll have a positive impact on many areas of your business.

If earnings per employee is important to you and your company—and it should be—now’s the time to take control. With the help of Vena’s collaborative and intuitive workforce planning software, you have the power to grow your business without bloating your employee headcount. 

Marisa Iacobucci

Marisa Iacobucci

Marisa is a Senior Copy Editor at Vena.

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