Are your employees generating enough revenue?

As a growing business one of the biggest decisions you can make is when or if to take on a new member of staff.

To help answer this question we interrogated the national data to find out how much revenue is generated per employee across UK business. In this article, we look at business with different level of employment and take a deep dive into some specific sectors to help you benchmark your business against your competitors.

What is Revenue per employee?

Revenue per employee is a simple metric that is calculated by dividing annual revenue by the current total number of employees – in the article we have used employment figures which also capture owner/managers.

This metric is particularly useful in comparing a business to its competitors, with a company looking to have the highest revenue per employee, indicating that the business is more productive.

On average UK businesses generate £118,000 of revenue per employee.

Whilst this is an interesting figure to economists and politicians looking to brag about the UK’s productivity, it isn’t necessarily a useful one to most businesses in the UK. The £118k includes every business in the UK from steal and electricity production to your local bar or library and everything in-between.

Figure 1 begins to breakdown the data by business size looking at director owner business with just one or two employees banded through to large 500+ employee international corporates.

(Source: Department for Business, Energy & Industrial Strategy) 

What is immediately apparent from this data is the steady increase in revenue per employee up to Band Four with 10-19 employees. This is a range where SME’s can be most productive and generate more revenue per employee than their larger counter parts in Bands 5-7. This productivity is primarily driven by the lower management requirement in smaller business where the majority of staff can sit in productive operational or revenue generating roles.

What about my sector?

Again, whilst this information begins to answer the question it doesn’t necessarily help an entrepreneurial business owner in making the decision whether to take on another employee or in benchmarking their business against competitors within their sector.

To answer this question, we need to dive deeper into the data and ask: how much revenue are businesses in my sector generating per employee and could my business generate enough revenue with another employee to justify the operational expenditure? Or, conversely, should the business look for operational efficiencies before making the commitment to another employee?

In Figure 2, we have pulled the data for 25 sectors that broadly represent our client base ranging from restaurants and bars through to software developers and online retail. We have broken the data down between micro business with less than 10 employees and small business with between 10-50 employees.

Figure 2 charts how revenue per employee changes across the sectors with staff heavy businesses like restaurants and bars typically generating only £37.5k and £48.5k per employee respectively and sectors that don’t rely on man power like online retail or software sales generating £150.5k and £147k respectively.

(Source: Department for Business, Energy & Industrial Strategy) 

How do you use this information?

In answering this question let’s take a look at a sector we as Accounts & Legal know a lot about -  Legal, accounting and bookkeeping services.

The sector we operate in shows average revenue per employee for a small (10-49 employees) business of £91.6k per annum. This figure sits almost in the middle of the table and reflect that fact that accounting and legal firms rely on human capital with specific knowledge and are reliant on people rather than machines. With this figure of £91.6k in mind an accounting firm with say 30 employees should generate c£2.7m (£91.6k x 30 employees) of revenue each year.

Let us assume that a fictional accounting firm currently has 30 employees but is only generating £2.5m each year in revenue. The firm’s management team are looking to grow the firm but can’t decide whether to invest in another employee or an IT system that will allow the team to operate more efficiently. When taking revenue per employee into account it is clear that the business is only generating £83.3k (£2.5m/30 employees) in revenue per employee, nearly 10% less than the average in their sector. This can help inform management decision making suggesting that they might look for further efficiencies in the business before taking on another employee and perhaps look at investing in the new IT system.