A declining Revenue to Employee ratio equals job layoffs

Too many employees and not enough revenue?

Perhaps your revenue to employee ratio isn’t what you are hoping for?

Decades ago, I figured good businesses tend to generate $300,000 of revenue for each employee on the books. That number was and is still considered quite good.

See if that works out close amongst some local businesses that you may know.

Back in original tech boom, Cisco Systems was amongst the gold standard in this category.

In 1998 Cisco had revenues of $8.5 billion and 145,000 employees thus the revenue to employee (Rev/Emp) figure was $586,000

In 2016, their revenue was $49.2 billion versus 73,700 for $668,000 revenue per employee.

In 2021, revenue was relatively steady at $49.8 billion against 79,500 employees for a Rev/Emp of $626,000.

The better gold standard back in 1998 was Apple.

A year after Steve Jobs returned to the company and launched the iMac to replace the ‘Macintoshes’, they were doing $6 billion revenue with 6,700 employees for a Rev/Emp of $895,000

In 2016, revenue of $216 billion using the employ of 116,000 people made that figure jump to $1.86 million

and in 2021, $366 billion revenue with 154,000 employees equals $2.38 million revenue for each employee.

So, when we look at the job layoffs occurring in Silicon Valley this year, perhaps the companies are running with too much fat.

Facebook (Meta) at $1.64 million Rev/Emp and Spotify’s $1.73 million seem to be looking OK, while Twitter’s $667,000, Tesla’s $757,000, Shopify’s $520,000 and Oracle’s $302,000 may help explain labour redundancies.

In comparison, companies such as Coca Cola has a Rev/Emp ratio of $535,000, Boeing is at $430,000, Citigroup is $343,000 and Starbucks does $182,000 based on its $25 billion of revenue compared to their headcount of 138,000 people.

November 10, 2022

by Rob Zdravevski

rob@karriasset.com.au