Fancy Pants B Schools Are Wrong

According to people with fancier degrees than me, revenue per employee is an important ratio that measures how much money each employee generates for the company.

To calculate a company's revenue per employee, divide the company's total revenue by its current number of employees.

Historically, this was a useful metric for evaluating a company's efficiency and productivity, as well as for benchmarking against other companies in the same industry

I believe this statistic is becoming increasingly worthless or at the very least, is becoming worthless in the businesses that I own, operate, or advise.

Why?

Now, we can recruit, retain, and manage from a GLOBAL talent pool - earning money in US Dollars, and paying “top of market” labor costs in local currency - with HUGE labor arbitrage.

Simple example:

Let’s say I need 100 American employees to run my 10,000,000 per year business.

Your revenue per employee is $100,000.

Let’s say the weighted average wage of an American is $50,000 per year.

The “net” per employee would be $50,000.

Now, using the same revenue based, let’s have our 100 employees be based globally - running your $10,000,000 per year business.

Your revenue per employee is the same $100,000.

BUT - the weighted average wage of global talent is $20,000 per year.

The “net” per employee would be $80,000!

Same revenue per employee VERY different net.

This is a massive oversimplification - but you get the idea.

So what’s the better solution?

I think it is revenue divided by labor cost, not revenue divided by headcount.

This lets you have a more sophisticated & accurate metric.

Total game changer - and the downstream implications are significant!

Do you agree?

Happy Outsourcing,

Jon

P.S. My Coaching is still “Waitlist only”