What is the difference?

# Revenue per Employee vs Payroll to Revenue Ratio

Revenue per Employee

Payroll to Revenue Ratio

#### What is it?

Revenue per Employee is a measure of the total Revenue for the last twelve months (LTM) divided by the current number of Full-Time Equivalent employees. This ratio is among the most universally applicable and is often used to compare companies within the same industry.

Payroll to Revenue Ratio is a productivity metric that measures how effective a business is at utilizing its labour costs to produce revenue. As with any ratio, it's always important to understand both the numerator and the denominator and how changes to either will impact the number.

#### Formula

ƒ Sum(Revenue LTM) / Count(Full-Time Equivalents)
ƒ Sum(Labour Costs) / Sum(Net Sales)

#### Example

If a company employs 50 people and has a revenue of \$7.5M annually, their Revenue per Employee ratio is \$150,000 on an annual basis. If they begin working on a new product line and hire an additional 25 employees, based on the same revenue, their Revenue per Employee ratio will be \$100,000 annually.

For a given time period, our Labour Costs are \$250,000. For that same period, Net Sales are \$500,000. Payroll To Profit Ratio = \$250,000 / \$500,000 = 0.5 or 50% Using the example above, if the \$500,000 in Net Sales were achievable with only \$200,000 in labour costs, then the ratio would improve to 40%.

#### Published and updated dates

Date created: Oct 6, 2019

Latest update: Jun 10, 2021

Date created: Feb 15, 2019

Latest update: Sep 17, 2020