What is Profit Per Employee?
Profit per employee measures how much net profit each employee generates on average. It is a key efficiency metric that reveals how effectively a company turns human capital into bottom-line results. Companies with high profit per employee have lean operations, strong pricing power, or highly leveraged business models.
The Formula
Profit Per Employee = Net Profit ÷ Total Number of Employees Revenue Per Employee = Total Revenue ÷ Total Number of Employees
Include full-time equivalent (FTE) contractors in headcount for accuracy. A team of 10 FTEs plus 5 full-time contractors has an effective headcount of 15.
Worked Example
A SaaS company has $5M revenue, $1.5M net profit, and 25 employees.
- Revenue per employee = $5,000,000 ÷ 25 = $200,000
- Profit per employee = $1,500,000 ÷ 25 = $60,000
- Profit margin = 30%
- If industry average is $40,000/employee, this company is 50% more efficient
📌 At $60K profit per employee, this company generates 50% more profit per person than the industry average, indicating strong operational efficiency and good pricing.
Why This Matters
Operational efficiency
Tracking profit per employee over time reveals whether scaling is efficient. If revenue doubles but headcount triples, profit per employee drops, a sign of diminishing returns on hiring.
Hiring ROI
Each new hire should eventually generate more profit than their fully-loaded cost. If profit per employee declines with each hire, the company is over-hiring or hiring for the wrong roles.
Competitive benchmarking
Comparing profit per employee against competitors reveals relative efficiency. A competitor with 2x your profit per employee either has better margins, fewer people, or more revenue per person.
Common Mistakes
❌ Excluding contractors and part-timers
A company with 20 employees and 15 full-time contractors has 35 effective team members. Using only 20 inflates profit-per-employee metrics.
❌ Comparing across industries
Tech companies naturally have higher profit per employee ($100-300K) than retail ($10-30K). Compare within your industry and business model.
❌ Optimizing profit per employee at the expense of growth
Not hiring to maintain high per-employee metrics can starve growth. The goal is to hire efficiently, not to minimize headcount.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| SaaS Companies | $80-200K | $40-80K | Below $20K |
| Professional Services | $50-100K | $25-50K | Below $15K |
| Revenue per Employee (SaaS) | $250K+ | $150-250K | Below $100K |
Source: Bureau of Labor Statistics & SHRM Human Capital Report
Benchmark data sourced from Bureau of Labor Statistics & SHRM Human Capital Report.