Pcm- Revenue Per Employee

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2 comments

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    Ena Tua

    I would love to do the Amber Book. Contact me maureen.tua@gmail.com

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    Marina Curac

    Hm that's an interesting question! My understanding is that net revenue per employee (the ratio that you described) is a piece of data that gets particularly useful at the end of the year, and while making financial projections for the upcoming year. Normally net revenue per employee is likely to go up when you have larger firms with more employees, and more expensive projects. This way, firm leaders can say - Okay, if we want to increase/decrease/maintain net revenue per employee, this is what needs to happen next year: we hire more people/we let people go/we put more/less money into marketing, etc. 

    If you were to calculate net revenue per particular employee (I try to be really careful about distinguishing between words "revenue" and "profit", as profit = revenue - tax - benefits, etc) I think there are a few ways of doing that, depending on which exact information you are looking to get. If you want to, let's say, at the end of the year say something broad like this - "Ok, I want to know how much revenue Beth has made to the firm this year", I believe you would need to employ a few pieces of information here. You need Beth's total labor hours, that's first. You will get that from her time sheets. If you want to be diligent, you will separate Beth's direct labor hours (which will refer to every hour of work that Beth put in an actual project) and indirect labor hours (which will refer to Beth's overhead hours). Within her firm, Beth's hour of work has a dollar sign assigned to it. This is the amount of money that firm pays to have Beth work for them for one hour (keep in mind that Beth does not take home all that money). As Beth's project managers negotiate project fees with owners (and partners), depending on her skill level and considering net multiplier, Beth's hour of work will receive a dollar sign which will refer to the amount of money that the firm will receive for an hour of Beth's work. If Beth in one year works on one project only (assuming bill rate and costs remain the same throughout the project), you will take the sum of all her hours, and multiply the sum with two mentioned dollar sign numbers (cost of labor and net revenue). You will subtract the labor cost total from Beth's net revenue. This number is a fairly rough number, but it will tell you how much money Beth made to the firm. However, not all of that money stays in the firm. Part of that money will go into paying consultants, paying Beth's health insurance and 401k contributions, paying HR, accountant, marketing folks, office rent, etc. When you deduct all those, you will then arrive to somewhat more accurate number of dollars that Beth brought straight to the firm's pocket. 

    I know there might be different ways of answering slightly tweaked questions, but I hope my explanation helps a bit. Generally, I would strongly encourage going to the AIA website, looking for the Best Practices category, and reading two articles - one on income statement, one on balance sheet. They helped me a lot. 

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