Underrated metrics that are vital to keeping track of a dispensary’s success
Preview: Learn about the importance of tracking revenue per employee for your business.
When you consider what makes a business successful, you may immediately think of high revenue and profits. There are other metrics that are commonly used to determine success, such as gross margin, sales growth year-to-date, and cost of customer acquisition. However, there are underrated metrics that are vital to keeping track of a business’s success, one of them being revenue per employee. While it is a fairly simple metric, it carries a lot of weight.
What is Revenue per Employee?
Revenue per employee is a ratio that shows the average amount of revenue generated per employee in a company. It is calculated by taking revenue and dividing it by the current number of employees. For instance, if a company had revenues of $10 million and they have 500 employees, their revenue per employee ratio would be $20,000.
What Affects a Company’s Revenue per Employee?
There are multiple factors that influence a company’s revenue per employee ratio. Inv
estopedia indicates that a few of these factors are the company’s age, industry, and employee turnover.
In general, more established or older companies will have a higher revenue per employee ratio. This is because, ideally, their labor costs rise at a slower rate than their revenue. Revenue per employee is also dependent on industry; industries that utilize more labor, such as agriculture and hospitality, have lower revenue per employee ratios. The gas and oil industries have the highest revenue per employee by a large margin, with global food & beverage/construction in second and healthcare/engineering at the lower end, according to recent Owler data analyzed by SpendMeNot.
The employees themselves also impact the revenue per employee ratio. Employee turnover occurs when employees are fired or quit, and new ones must be put in their place. This may lead to less revenue per employee, since older employees have to spend time training new ones.
Why is Revenue per Employee Important?
Although revenue per employee is a simple figure, it has a lot of implications. This metric is important because it indicates how efficiently you are utilizing your employees. The higher the revenue per employee, the more productive and profitable the company is. A company with a high revenue per employee uses its investment in human capital well by developing productive workers, and this potentially gives them an edge over competitors.
Revenue per employee is also helpful for comparing a company with others in its industry and determining the most effective wages for employees. Ultimately, a company can use this ratio to evaluate their operational efficiency and improve the company. Consistently keeping track of this ratio is crucial, as it aids in showing the company how their productivity has changed over time.
How Companies Can Implement This Metric
According to Small Business Matters, there are a several ways this metric can be used. First, the company must conduct research on its own size and its industry in order determine an optimal revenue per employee. Next, they should set a range based on that number. If their revenue per employee goes below the range, they should consider decreasing the size of their team. If the number goes above the range, they should hire more employees.
Finally, the company should continuously monitor their revenue per employee and see how they can increase this number. Some ways they could do this is by improving employee productivity, more effectively using technology, or optimizing their hiring practices and training.
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