What is revenue per employee?

Definition

Revenue per employee is revenue divided by total headcount. On the books, this is a productivity reading of sales against the people on payroll, not a ledger account you debit.

The figure is dollars of revenue for each person, not a utilization percent of hours. It asks what the whole roster produced, including front desk and clinical staff.

It is not an Income Statement line. The books already hold revenue and the headcount that sits behind payroll expense; this reading divides them.

Stay with revenue against headcount when you read it. The share of available hours that were billable is a different page.

Where it shows up

P&L: Related to revenue against the people who produced it.

Cash flow: Related to whether that revenue was cash.

See also: Revenue · Headcount · Payroll Expense

When you look at your Income Statement, take revenue for the period. Then divide by the number of people employed, usually the average headcount for the same window.

When the figure is high, each person produced more sales. When it is low, a larger roster produced less revenue per person, which may be a hiring lag or a slow season.

Payroll expense is the wage cost on that same statement. This page is not a wage rate; it is sales per person, so a clinic can read high here while wages are also high.

On the Statement of Cash Flows, revenue and cash from operations can diverge. This page stays on the sales rate, which can look healthy while copays sit uncollected.

A headcount plan is the staffing plan behind budgeted payroll. This reading is the actual sales against the actual roster, not the plan.

How it works

Start with revenue for the period. Divide by total headcount, counting every person on payroll, not only clinicians.

$1,200,000 of revenue against 12 people is $100,000 per employee. Write it in dollars so the rate is easy to compare across years.

Stay with total headcount in the denominator. Leaving out the front desk or part-time staff makes the figure look stronger than the full roster produced.

Average headcount is cleaner when people join or leave mid-year. Using only the December roster can distort the rate if the clinic hired four people in November.

Gross margin asks what share of revenue remained after direct costs. This page asks how much revenue each person produced, which can rise while margin falls.

Operating margin asks what share of revenue remained after operating costs. A clinic can raise revenue per employee and still thin that margin if wages rose faster than sales.

Capacity is the volume of visits the current team can deliver. This reading can sit high while the schedule is already full, which is a roster question for another day.

This page stays on revenue against headcount. The share of available hours that were billable belongs on another page.

Example

Willow Pediatrics is a 12-person clinic. Revenue for the year is $1,200,000.

Divide: $1,200,000 by 12. Revenue per employee is $100,000.

That $100,000 is sales against the whole roster. It is not the share of available hours that were billable, and it is not each person's wage.

If the clinic hires 3 more people late in the year and revenue stays $1,200,000, average headcount rises and the rate falls. The roster got larger before it produced more visits.

If revenue rises to $1,440,000 on the same 12 people, the rate is $120,000 per employee. The roster did not change; the sales did.

If half of that revenue is still sitting in unpaid copays and insurer invoices, the Income Statement rate can still be $100,000. The cash reading would be lower until those balances clear.

The clinic does not post a line that says this rate. The books already hold revenue and the roster; you divide.

Common mix-ups

This rate is not the same as a utilization rate. Utilization is the share of available hours that are billable; this page is revenue divided by headcount.

This rate is not the same as payroll expense. Payroll expense is the wage cost; this page is sales per person.

This rate is not the same as cash in the till. A $100,000 reading can sit in unpaid copays while last month's wages already left the bank.

Related terms

• Revenue: The total value of goods and services the business earned in a period.
• Headcount: The number of people employed, tracked as a cost driver.
• Payroll Expense: The wage cost of employees recorded on the income statement.
• Utilization Rate: The share of available hours that are billable.
• Gross Margin: Gross profit expressed as a percentage of revenue.
• Headcount Plan: The staffing plan behind budgeted payroll cost by period.
• Operating Margin: Operating income as a percentage of revenue.
• Capacity: The volume of work the current team or equipment can deliver.