A major metric of company performance is sales per person. The reason for its heavy usage is the belief that high employee efficiency and effectiveness leads to higher sales. However, a better metric is profit per person, which also incorporates the effects of all company expenses.
Several issues with the sales per person measurement are:
- A business may be capital-intensive, rather than headcount-intensive; in such an environment, this measurement provides little real information.
- The measure focuses on headcount, rather than the cost of that headcount. Thus, a business with a few highly-paid staff may earn fewer profits than a similar business with many lower-paid employees.
- The measure can be easily skewed by shifting work to contractors, by outsourcing work entirely, or by imposing more overtime on a smaller number of employees. The result can be higher sales per person, even though profits may worsen.
The derivation of sales per person is a two-step process. First, determine the number of full-time equivalents (FTEs) in the business, which is the amount of staff time that equates to a forty-hour work week. For example, four employees working 10 hours per week are the equivalent of one FTE. Second, divide the number of FTEs into net annualized sales. The formula is:
Annualized net sales ÷ Total full-time equivalents
For example, the president of Dude Skis wants to know the sales per person for the business. In the last year, Dude had annualized gross sales of $10,000,000 and sales returns of $50,000. Its average headcount information for the past year is:
|Quality control department||2|
|Material handling department||4|
|Sales, general & administrative||10|
|Administrative part-time staff||6|
Based on the table, Dude employs 56 people. However, six of these positions work half-time in the administrative area, so they are really 3 positions on an FTE basis. Thus, the net headcount is 53 positions.
The sales per person calculation for Dude is:
($10,000,000 Gross sales - $50,000 Sales returns) ÷ 53 FTEs
= $187,736 Sales per person
The sales per person measurement is also known as revenue per person.