Better decisions, better business

It’s not payroll, not the number of clients, not ability to land new sales, not billing rates, not the business model, not overheads and not a lot of other things that  might come to mind.  The one metric that jumps out as the clear driver is total revenue per employee.  Research shows there is very little meaningful difference in these aforementinoed metrics when you compare top performers to average performers in the IT service marketplace.

“Top performing companies generate $240,000 per employee”

Research shows that top performers generate an average of $240,000 per employee per year while the overall average across all companies is $187,000 per employee per year. This 28% difference gives the top performers a huge 38% profitability advantage (before bonuses to owners). In the grand scheme, revenue per employee has a higher correlation to higher profits than any of the other metric.

“Employee” in this research includes all billable and all non-billable employees and also counts sub-contractors. Part time employees are counted as fractional employees; a half time employee would count as 0.5 employees.

Our research also shows that most business owners tend to believe that their employees are working at full capacity. But one particularly strange discovery is that companies with lower revenue per employee tend to think their staff is overworked and unable to take on more revenue-generating work. Meanwhile, companies with higher revenue per employee tend to believe that they could further improve efficiency and get even greater revenues without adding more staff. We plan to do more research on this in the future, but at the moment it looks like it all boils down figuring out how to get to $240,000 per employee and from there it will be easier to see how you can do even better.

There is a lot more detail in this research, but the clear message is that all companies need to watch this metric and use it as the overall test of how well their team is performing. And it is even more important to watch your monthly trend line so that you can see if you are actually improving over time.

I will have more information on profitability research in the months ahead, so stay tuned!