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This statistic may or may not be applicable for your firm, but before you toss it aside, calculate your annualized sales per head and compare it to competitors in your industry if you have their information. The ratio tells you a lot about a firm and the value of the products they sell. It is not the only statistic to watch, but it can be helpful in warning you about falling productivity.
As sales per employee drops, headcount needs to be evaluated quickly. No one wants to terminate employees, but unless sales orders rise, a company cannot retain everybody on lower revenues and falling net income. Managers must adjust their staffing to meet the customers’ orders. This is the time to carefully measure productivity, billable hours and overtime. Sales per employee will show this downward trend quickly if costs are out of control and it is tracked each month. If sales bounce up and down, try using a three month moving average or a different denominator more indicative of what is happening in your company’s market. Another caution to adjust for is having more work farmed out versus doing it yourself. This will drive the average higher since fewer heads are needed to do the work.
