Strategic Human Resource Metrics: Labor & Revenues

Strategic Human Resource Metrics: Labor & Revenues
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  • 0:03 What Are Human…
  • 1:00 Labor - Percentage of Sales
  • 1:49 Revenue per Employee
  • 3:05 Profit per Employee
  • 3:56 Absence Rate
  • 5:13 Lesson Summary
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Lesson Transcript
Instructor: Bryan McDowl

Bryan has a decade of experience in human resources and has a MBA degree and is also PHR and SHRM certified!

This lesson will explore data trends and metrics that measure staff productivity and labor costs. You'll learn how to use them, discuss their value to the organization, and discover instances when they become most important.

What Are Human Resource Metrics?

Savvy HR professionals can reduce every area of the organization to relevant numbers. They can tell you how long a job opening has been in the market, what the cost of acquiring talent is, even assign a numerical value to qualities like employee satisfaction. While all metrics are valuable and can give you an enormous amount of information, what leaders of organizations generally are most concerned about is the productivity of their staff.

Managers want to know if they are getting a high level of production out of their employees. To calculate that, we use specific metrics that incorporate labor costs, the revenue and net profit of an organization, and absenteeism. If your labor costs make up too much of your total revenue or net profit, then your organization will not have the flexibility to grow. And if employees have a high absentee rate or missed work, then other costs will increase significantly.

Labor Costs as a Percentage of Sales

Payroll + Benefits / Total revenue * 100

calculates labor costs as a percentage of sales, which gives employers insight into how efficiently they're funding their workforce. Labor costs that managers take into account include payroll, insurances, production, employer paid payroll taxes, retirement costs, and training costs.

If an employer is unaware of the exact costs of labor, it can negatively impact their bottom line profits. In extreme cases, ignoring labor costs can be a reason that a business closes. This metric is critical in determining why the profits of an organization are not meeting projections. Accurate labor metrics can show managers how much their labor costs are draining from their revenue and help them determine if layoffs are truly necessary to increase profits.

Revenue per Employee

Revenue / # of FTE

calculates revenue per employee. FTE represents full-time equivalents, or the number of employees working full-time hours during a period of time. An FTE rating of 1.0 represents an employee working eight-hour days five days a week. Revenue per employee is a critical metric that allows any organization to measure how efficient its workforce is. A high revenue per employee ratio would indicate that the organization is being productive in getting more sales or revenue out of each employee. It's important to keep in mind that this varies by industry, and comparing a labor-intensive industry to a technical industry would be like comparing apples to oranges. General comparisons should be made with the same industry in mind.

The age of the company comes into play as well. Start-ups that are moving quickly to fill key positions while they have less revenue will, therefore, have a relatively small revenue per employee ratio. Meanwhile, a more established company might have a deeper revenue stream that makes its revenue per employee ratio higher. Strong leaders of organizations are able to increase their revenue streams ahead of their labor costs, and efficiency in this metric allows for higher profitability.

Profit per Employee

The profit per employee is equal to:

Revenue - Total operating expenses (before interest and tax) / # of FTE

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