How To Revolutionise Your Team's Efficiency
Who hated ratios at school? Well, I loved them which is a bit sad, but that is most probably why I’m an accountant!
Understanding ratios is important when running your own business. Understanding what they mean and what you should do with them is important, along with the trends so you can see things improving or not in order to make the necessary changes before it's too late.
One ratio that does not get looked at too often is the Revenue per Employee ratio. Why is that when it is potentially one of the most important ratios to look at if you employ staff? It is most probably due to profit and cash ratios being seen to be important as it affects profitability and money in the bank whereas Revenue per Employee concentrates on efficiency and unfavourable results might mean some difficult conversations with your employees.
So how is it calculated and what do the results mean?
It is total revenue for the period divided by the number of full-time employees in the business. If this figure is increasing then your staff are more efficient as each of them is generating more revenue and obviously, if it’s getting worse then you are either overstaffed or they are not being as efficient as previously. You will need to review the employees capacity and productivity and are they using the systems correctly? Do they have enough training? Are they using the right tools? It's one number that looks at many different areas of the business, and it's not just in isolation. So, it's a really joined up approach to running the business from that one number, and it looks at culture as well across the whole board.
Compare your Revenue per Employee year-over-year to compare your most efficient performance periods to time periods that could be improved. Use this information to refine your hiring and staffing plan to reach the optimal Revenue to employee ratio.
This ratio should be the first number a business should be looking at if they are in the service industry as you are in effect selling your employees time.