Need to know: profit per employee

What is the profit per employee?

This is a key measure that companies and organisations often use. It is a particularly important ratio in people-orientated businesses, such as those in the service sector, as they aren’t selling a product, they’re selling people and relationships. So companies that make money primarily by people talking to customers and clients value this measure because these businesses are naturally more reliant on their employees.

As this measure is more relevant to some companies than others, it’s important to establish whether it is considered significant to your company. If it is less important then there will be similar measures that you can use for the same purpose, for example, productivity per employee, customer satisfaction scores or, in the public sector, something like cost per employee.

Understanding this and similar measures will enable you to better evaluate your initiatives or client requests in terms of the likely impact they will have on this ratio, and subsequently whether it would be considered ‘good for business’.

Ultimately, it’s important to look at your company and determine what those key measures are and to then understand how to use them in order to measure HR activity.

Talk to your senior management about how they measure the business, look at information such as annual reports and consider what it is that is being reported on. Then ask yourself what measures the company values?

If your company doesn’t produce an annual report, look at how your management team reports back at the end of the year. Almost all companies produce some kind of communication that says “this is how we’ve done”. You can also learn a lot from looking at strategic plans and considering how to measure key goals.

Once you understand those values, it’s important to find simple ways of tracking that data so you can monitor whether you’re getting closer to or further away from achieving good results. And you should also remember that it’s far better to have one or two key measurements that you really monitor, rather than many that you don’t look at.

Also, you need to ensure that it doesn’t take more effort to collect data than the results are worth.

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