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Most of the news in the tech industry these days is about layoffs.

Ultimately this is a question about employee costs and how well a company is managing them.

One way to answer this question is to use a simple, but powerful metric -

Revenue per employee (=Revenue / Full time employees of a company)

Before we see the data, I want to point out that like most metrics, this one has limitations.

• Firstly, not all revenue is created equal and one can argue that gross profit per employee is a better measure than revenue per employee

• Secondly, the metric doesn’t account for external contractors/ consultants used by the company (quite large in some cases)

Nevertheless, it can give us some good insights when we compare companies against each other.

CJ, who is a CFO agrees.

CJ Gustafson @cjgustafson222

If I could only choose one metric to evaluate a company... I'd chooose revenue per employee Why? It cuts through all the noise. And there's no hiding.

3:00 PM ∙ Jan 25, 2023

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Let’s look at this metric for publicly listed SaaS companies.

I find this chart fascinating to look at!

What stands out to me are:

• While there is a big range, most companies are <$500K revenue per employee. This is quite low compared to tech companies in other industries, e.g. Social Media.

  For instance, the worst run social media company - Twitter, had revenue per employee of $680K. Google and Facebook are above $1.5M revenue per employee.

  I covered this in detail, in a post when Musk acquired Twitter.

Trendline

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• Secondly, while there isn’t a very strong correlation (I checked, its about negative 11%), the higher growth SaaS companies tend to have slightly lower revenue per employee - this makes sense as these companies are likely adding headcount for future growth.

• 54% of the companies are stuck at revenue per employee <$300k (across all growth categories). CEOs of these companies need to manage headcount closely, esp. to get through the current difficult macro conditions.

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