A retail store earning over $1 million in profit each year. Sounds great, doesn’t it? But if you scratch the surface and learn that the business employs 100,000 people, you see that profitability isn’t as high as you assumed.
Retail stores live (and die) by how much profit they make. Once you’ve made enough to cover inventory, staffing costs, and rent, extra money in the bank can be put towards growth or taken as dividends.
But as we’ve seen, looking at profit margins alone doesn’t give the full picture. Revenue per employee enables you to see the value of each team member. It allows you to compare how much money you spend employing staff to the revenue they drive for your store.
In this guide, we’ll explain how to calculate and use your revenue per employee (RPE) ratio. We’ll also discuss three techniques to improve your RPE ratio if it’s on the low side.
What is revenue per employee (RPE)?
Revenue per employee is the average amount of money any given employee makes for the store. It’s a key performance indicator (KPI) used to determine how efficient a store is, whether retail staff need further training, and whether the store is more profitable than a competitor.
Importance of revenue per employee
- Measure efficiency
- Identify areas for improvement
- Evaluate historical changes
- Compare against competition
Let's look at some of the different reasons for calculating revenue per employee.
Efficient businesses make more money by squeezing every ounce of productivity out of their team.
Rengie Wisper, co-founder of Ever Wallpaper, says, “If you're growing revenue but not hiring new employees, that's a good sign that you're becoming more efficient with your time and resources.
“On the other hand, if you're seeing your revenue grow but not increasing the number of employees, that might mean you need to hire more people in order to handle all the incoming requests.”
Identify areas for improvement
Revenue per employee isn’t just a financial metric. Use it to identify ways to improve employee satisfaction and subsequently, how much revenue they generate for your store.
If your RPE ratio is low, consider ways to motivate your staff—be that through learning new skills, team-building exercises, or long-term career planning. The happier your team is, the less likely they are to leave. That frees up more time to spend on high-revenue tasks rather than replacing unhappy team members.
Evaluate historical changes
Many retail store owners fall into the trap of only looking at turnover when evaluating store performance. Revenue per employee, however, gives greater insight into how profitable each season was.
For example, let’s say that in November 2021, you had six employees. Each contributed an average of $100,000 during the Black Friday season, generating a total of $600,000 in revenue. Through the same period the year prior, you had nine employees contributing the same amount of revenue.
Comparing revenue alone, you might conclude that because year-over-year sales didn’t grow, 2021’s Black Friday sale wasn’t successful. In reality, however, it was more profitable than the year before. You generated the same revenue while paying three fewer salaries.
Compare against competition
Competitive analysis gives a good indication of how well your business fares. By comparing your RPE with that of similar businesses in your industry, you’ll see whether low productivity is costing you money.
If you’re a small sportswear brand with an RPE of $5,000, for example, it doesn’t seem to make sense to compare your total revenue to Nike’s. But if we divide Nike’s $44.5 million annual revenue by its 73,300 employees, yielding an RPE of $607, it’s a win. Your small (but mighty) team is more productive than that of a billion-dollar brand.
How to calculate revenue per employee
Now we know how to use RPE to evaluate store performance, here’s how to calculate it.
Revenue per employee formula
To calculate RPE for your retail store, use this formula:
Company revenue / current number of full-time employees = revenue per employee
Let’s determine the RPE of a retail store. The business generates $300,000 in profit per year and employs 10 people. Using this formula, your RPE would be $30,000.
Revenue per employee example
If you’re looking for real-life examples of how brands calculate RPE, let’s take data from 2PM to calculate the average revenue per employee popular retailers make.
- Knix has 127 employees generating an average revenue of $70.5 million per year. That comes out to $555,118 revenue per employee.
- Boll and Branch has 116 employees generating an average revenue of $80.8 million per year. That equates to $696,551 revenue per employee.
- Everlane has 309 employees generating an average revenue of $361.2 million per year. That equates to $1.68 million revenue per employee.
What is a good revenue per employee ratio?
As you can see from these examples, the RPE of a retail store can vary dramatically. Benchmark your ratio against CSI Market’s $448,888 average. If yours is lower, it’s worth putting a strategy in place to increase it.
Factors that influence revenue per employee
While RPE is a good metric to compare your store performance against others, there are many variables that influence how high (or low) yours might be. These include:
- The age of the company. Companies that have been around for years have likely invested more time into developing processes and training staff, which equates to more productivity.
- Whether there’s an official human resources team. The larger the company, the more likely it is to have an official HR department. These people make employees feel valued, engaged, and productive, contributing to a higher RPE.
- Employee retention. Studies estimate that U.S. retailers lose $19 billion per year when replacing employees. This can stagnate retailers’ progress to improve revenue per employee.
Revenue per employee by industry
The industry you operate in has an impact on how much revenue each employee generates, too.
Kevin Wang, co-founder of Inyouths says,
“[Revenue per employee] should only be compared to other companies in the same or a related industry, as each sector has a unique cost structure. A labor-intensive corporation, for instance, will often report a lower revenue per employee than a technological company.”
Research by Tipalti supports this point. Businesses in the financial industry have the highest profit per employee. Technology, food, and healthcare brands also make the shortlist, with retailers coming in 11th place.
How to improve revenue per employee
If your store’s revenue per employee doesn’t stack up to the competition, here are three effective ways to improve your ratio.
Prioritize employee development
Rengie Wisper of Ever Wallpaper says, “In order to improve revenue per employee, you need to ensure that your employees have access to the tools and training they need in order to do their job effectively.
“This can include everything from providing them with the right equipment (such as printers or scanners) or software programs (like an accounting package), to providing them with the training classes necessary for them to perform at their best.”
As part of your commitment to employee development, provide regular retail training, such as:
- E-learning courses to improve product knowledge
- Hands-on training that teaches staff how to use new retail technology
- Role-playing difficult scenarios so they’re well prepared to handle them (like dealing with angry customers)
I believe investing in training for your employees, including marketing and sales programs, is a huge way to boost your revenue/employee ratio. Better trained and better educated employees are able to do their job more efficiently and productively.
Not only does regular training produce high-value skills for your company, but it contributes to low staff turnover. Remember: the less time (and money) you spend replacing employees, the higher your RPE will be.
💡 PRO TIP: Try using apps to upsell and cross-sell more effectively. Apps like Marsello and Frequently Bought Together integrate with Shopify POS and recommend products to store staff based on what they’ve added to a customer’s cart, making it easier than ever to suggest relevant products, increase basket sizes and order value.
Invest in technology and automation
There’s a finite amount of time in the day. Investing in retail technology offers the opportunity to free up time for your team to spend on high-impact activities, thereby improving employee productivity and increasing profit margins.
Technology also allows you to reduce headcount and cut labor costs. The fewer employees you have to divide revenue among, the higher your RPE ratio will be.
To see these results for your store, experiment with retail technology like:
- RFIDscanners to cut time spent manually recording inventory
- Store management apps like Gusto or Planday to manage staff rotas
- Smart checkouts like Mashgin to cut time employees spend taking payment at the checkout counter
💡 PRO TIP: With Shopify POS you can easily customize your home screen and add shortcuts to get things done faster. Create shortcuts to your most used apps, discounts, products and categories, and more, no coding required.
Align employee skills with responsibilities
According to one Oxford University study, happy employees are 13% more productive. Aligning your team members’ skills and responsibilities is a surefire way to improve job satisfaction, and therefore the amount of revenue they generate for your store.
Let’s put that into perspective and say you have three team members, each with a different set of skills:
- Employee A has great communication skills. Give them customer-facing responsibilities, such as handling return requests or welcoming new shoppers to the store.
- Employee B has incredible problem-solving skills. Give them the responsibility of improving your retail conversion rate or evaluating inventory shrinkage.
- Employee C has strong mathematical skills. Make it their job to count inventory, prepare financial statements, and analyze annual reports.
Along with greater job satisfaction, aligning employees’ skills with their list of responsibilities makes the store run more efficiently. Team members are more likely to complete jobs they’re good at faster, without inaccuracies. You’ll save time and money rectifying mistakes if the most skilled employee is already on the job.
💡 PRO TIP: With Shopify POS, you can assign different roles and permissions and set boundaries on what store staff can do in your POS system without manager approval—like changing a product’s price or applying a custom discount to a sale.
Increase your store’s revenue per employee
It’s easy to see employees as an expense. But by tracking how much revenue each team member contributes, you’ll see the value of having them as part of the business.
Use the formula we’ve given here to calculate your RPE and put processes in place to improve it. The higher your revenue per employee, the better. It shows your employees are productive and generating healthy profits for your store.