Spending On Tomorrow Hits Today's Bottom Line

by Diane Herbert and Pamela Millard

The term, 'revenue per employee' is a widely accepted measure of an agency's performance. It's calculated by dividing total agency revenue by the number of full-time and part-time employees. The agency's mix of business, average account size, and level of automation affect revenue per employee. While profitability and revenue per employee are tied together, there's a little more to the formula.

A high revenue per employee could indicate that an agency is operating as a high-performing organization. But it could also indicate that it has a harried and overworked staff that's providing slipshod service.

On the other hand, low revenue per employee could indicate that an agency is very overstaffed and is using its personnel ineffectively. But it could also indicate that the agency is building bench strength by hiring inexperienced producers or adding assistant positions to develop tomorrow's CSRs. Human resources professionals define 'bench strength' as hiring staff members with hot skills - even before they have actual job openings.

Agencies with a lot of turnover are rewarded with lower headcounts. But turnover affects the agency's ability to retain business. At the same time, agencies that consistently bring in new producers or create entry-level positions to fill the jobs of the future have higher headcounts and lower revenue per employee as a result. Bench strength affects an Agency's ability to increase its revenue-per-account through account rounding and up-selling. Agencies are penalized for investing in staff. Or are they?

Higher profits can come from improving the effectiveness of the organization even if it means adding another person to the head count. If that improved effectiveness increases income, the revenue per employee will eventually increase as well.