For many business owners, a sales-per-employee metric is the epitome of business intelligence.
If business is all about making money and labor is the most expensive input, then sales-per-employee figures should provide an accurate picture of the company's productivity, profitability and growth potential.
Sounds easy, right? Unfortunately, sales-per-employee metrics don't necessarily tell the whole story. Although this metric can be extremely useful, it can also be disastrous if leaders don't understand its limitations and blind spots. Sometimes, over-reliance on a sales-per-employee metric can factor into the company's eventual decline.
As a business owner, you should clearly incorporate a sales-per-employee metric into your measurement strategy – as long as you understand what is actually being measured and how it affects your company.
- Industry benchmarks. Sales-per-employee metrics have to be evaluated against industry benchmarks. Cross-industry comparisons are counter-productive because some industries are more labor-intensive than others. Likewise, larger companies tend to report higher sales-per-employee figures than smaller ones, so it's helpful to compare your metric to similarly sized companies in your industry.
- Revenue vs. profit. Revenue and profit are very different inputs. You can have extremely high revenue-per-employee, but if your profit-per-employee is low compared to the competition, your cost structure may be out of whack with the industry.
- Worforce blind spots. Sales-per-employee metrics can be manipulated by weighting a large portion of the workforce toward sales and marketing activities. Although it can be unintentional, a high sales-per-employee has to be carefully evaluated to ensure that other core business functions (e.g. R&D, manufacturing, etc.) are adequately staffed for future growth.
- Timing issues. The method you use to calculate sales-per-employee metrics may be vulnerable to distortions based on timing. For example, if current sales are the result of the work of the team you employed two months ago, it doesn't account for the additional ten people you employed this month. Be diligent about making sure your metric takes into account changes in staffing and the timing of sales data.
- Improvement strategies. Sales-per-employee metrics should always lead to the creation of strategies for improvement. Never, ever take sales-per-employee data at face value. Instead, carefully evaluate the numbers for distortions and then incorporate the results into a comprehensive strategy to outperform your industry in the generation of revenue and profit.