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Revenue per employee is calculated as total revenue divided by number of employees. It is a basic measure of the productivity of an economy, industry or organization. Revenue per employee is impacted by several factors:
Allocative Efficiency A business strategy that allocates employees to productive things. For example, a failed project has a negative impact on revenue per employee.Technical EfficiencyGenerally speaking, inflation adjusted revenue per employee increases over time due to technological improvements such as automation of labor intensive work.ScaleEconomies of scale tend to improve revenue per employee. A firm producing a million bicycles a month typically has higher revenue per employee than a firm producing a thousand bicycles a month.
ProductivityThe overall productivity of workers. For example, a small startup may be extremely productive as employees focus on launching new products and features. A large organization may be less productive due to factors such as office politics and the overhead of communicating in a complex organization.
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