Revenue per FTE

Headcount is the largest cost in most businesses. Revenue per FTE tells you how productively that cost is deployed.

The formula

Revenue per FTE = Annual revenue ÷ Full-time equivalent employees

FTE includes full-time staff plus contractors prorated by hours. A contractor working half-time counts as 0.5 FTE. Some calculations exclude certain roles (outsourced support, for instance) — the definition matters.

What it measures

Revenue per FTE captures labour productivity. A business generating £500k per employee is extracting more economic value from each person than one generating £150k.

The metric varies enormously by industry. Investment banks and software companies often exceed £500k per FTE. Professional services firms typically range £150k-£300k. Retailers and manufacturers with large frontline workforces might sit at £100k or below.

These differences are structural, not judgmental. A consultancy needs people to deliver; a software company needs people to build but not to deliver each unit. The business model determines the baseline.

What it reveals about business models

Revenue per FTE is a proxy for operating leverage.

High revenue per FTE (above £400k) suggests the business can grow revenue without proportional headcount growth. Software companies, asset managers, and marketplace businesses fall here. Each additional employee can support significant incremental revenue.

Medium revenue per FTE (£150k-£400k) suggests linear scaling. Professional services, specialised manufacturing, and technical sales fall here. Revenue growth requires roughly proportional people growth.

Low revenue per FTE (below £150k) suggests people-intensity. Retail, hospitality, logistics, and care services fall here. Revenue is directly tied to hours worked.

The highest-margin businesses typically have high revenue per FTE because labour costs are a smaller share of revenue. But high revenue per FTE alone doesn’t guarantee high margins — the non-labour costs might be substantial.

What it hides

Revenue per FTE hides several important factors:

Outsourcing and contractors. A company might show high revenue per FTE by outsourcing functions that would otherwise require employees. The productivity looks strong; the actual labour intensity is hidden in cost of goods sold or service costs. Always ask what’s excluded from FTE.

Revenue quality. A business might inflate revenue per FTE through one-time sales, pass-through revenue, or aggressive revenue recognition. The productivity metric looks strong but doesn’t reflect sustainable economics.

Investment phase distortion. A scaling business hires ahead of revenue. Revenue per FTE drops during investment phases even though the strategy is correct. Conversely, a business cutting headcount shows rising revenue per FTE while potentially damaging future capacity.

Geographic and wage arbitrage. A company with engineers in lower-cost locations will show different revenue per FTE than one with equivalent staff in expensive cities. The productivity is similar; the denominator is not.

Where it breaks down

Industry incomparability. Revenue per FTE is only meaningful within industry context. Comparing a SaaS company at £400k to a retailer at £120k tells you nothing about relative performance. Compare like with like.

Pass-through revenue. Distributors, agencies, and marketplaces often have revenue that passes through without much value-add. A recruitment firm might show £300k revenue per FTE, but most is passed through to candidates as salaries. Gross profit per FTE would be more meaningful.

Seasonality and timing. Revenue per FTE using period-end headcount can mislead if the business is seasonal or recently changed staffing levels. Using average FTE smooths this but requires consistent data.

Quality versus quantity. Two companies might have identical revenue per FTE, but one achieves it with senior, expensive staff and the other with junior, cheaper staff. The productivity metric is the same; the margin implications are different.

Related metrics

Revenue per FTE is often more useful alongside:

Gross profit per FTE. Strips out pass-through revenue and direct costs. Shows productivity on the value-add, not the total transaction.

EBITDA per FTE. Shows how much profit each employee generates after all operating costs. Captures both revenue productivity and cost efficiency.

Revenue per £ of payroll. Normalises for wage differences across geographies and seniority levels. A business paying £80k average salaries generating £400k per FTE is in a different position than one paying £40k average salaries generating the same.

The decision it enables

Revenue per FTE tells you whether the business model scales efficiently with people.

Rising revenue per FTE over time suggests operating leverage is kicking in. The same people are supporting more revenue, or revenue is growing faster than headcount.

Falling revenue per FTE suggests the opposite. Either the business is investing in capacity (healthy, if temporary) or productivity is declining (concerning, if persistent).

For operators, the metric creates accountability for headcount decisions. Every hire should either directly generate revenue or enable others to generate more. If revenue per FTE declines without a clear investment thesis, you’re adding cost without adding value.

The metric series: Part of a series on metrics that reveal what headline numbers hide.