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Revenue Per Employee: The Only Performance Goal You'll Ever Need for HR Leaders

How do you measure the effectiveness of an HR Leader?  I'll define HR Leader fairly broadly to keep everyone engaged - let's say that's not only those who lead the HR function for an entire company, but also those with generalist responsibility over a client group of employees.  If you support a line of business or a function and have a flock of employees to hire, train and fire, you're an HR leader.

Talking about the effectiveness and performance of HR is a black hole.  You've got the transactional side, performance, talent acquisition, etc.  All sub-areas of HR have metrics, and HR leaders have been told that measurement is the key to the HR function being viewed as strategic. Revperemployee

But the top 20 metrics you can site are really just white noise when it comes to measuring the effectiveness of an HR leader.

There's only one metric that really matters when measuring HR.  It's called Revenue Per Employee (RPE).  Take the revenue produced by your company or business unit and divide it by your total number of employee (FTEs for the budget geeks in the house).   

Compare Revenue Per Employee year over year for your HR leader.  Did it go up or down?  That's all you need to know. The rest is BS.

The naysayers tell me that's an imperfect measure, citing the need to measure profit and the fact that all revenue isn't good revenue.  My response to both of those issues is pretty simple... An HR pro's contribution to profit is best measured by getting the most out of the people they have, and the demoninator of the formula (per employee) is actually an expense number measured by FTE's.    Lower revenue per employee means that you're likely delivering less potential profit to the company related to what you can control.  So profit is in there based on the revenue/headcout dynamic.

The side that says all revenue isn't good revenue?  Try telling that to a wise CEO that wants to measure you via Revenue Per Employee.  The thought may be true, but it's just noise and a reason to say no to the measurement.  Start focusing on Revenue Per Employee and let someone else figure out what's good and bad revenue.  We're not qualified to determine that, and all that thinking does is cause paralysis by analysis....

Comments

Tasinquefield

Kris, I have to agree with you. I understand wanting to get a more "descriptive" number but in reality, there is no great way of measuring the output of employees. In reality, the only way is through revenue - more engaged employees, who are part of a great performance management program - will produce more revenue. My firm's revenue is billable hours - for us, there is a 100% direct link between engagement and productivity and revenue.

Persis Swift

Hey Kris,

We completely agree! Revenue per employee is the most effective way to measure HR effectiveness. RPE can justify your next HR initiative! We recently wrote a post on the topic. Please check it out: http://blog.capital.org/the-best-metric-for-hr-effectiveness-revenue-per-employee/

Barbara Moberg

How about the employee who works for a non profit organization?

Sean Conrad

Great post Kris.

@Barbara - In a non-profit there is usually some objective measure that equates to revenue. For example http://pedaids.org/ measures the various services or interventions per employee. The local food bank we (@HalogenSoftware) support http://ottawafoodbank.ca/ measures overall food delivered per employee.

It's not quite as simple as straight $ revenue but it's normally something the non-profit is tracking anyway to determine overall results.

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