A New Approach to Revenue per Employee – The QPeX Method

When baking an apple pie most cooks start with a recipe, whether from a book or one which they have memorized and perfected over time.  Ingredients are often measured with a kitchen scale to determine how much of each is necessary to make the whole pie. But is one ingredient more essential to the final product based solely on the amount included?  Maybe.

Trying to measure the value an employee contributes to a company can be much more complex.  In some positions where the output is quantifiable, such as sales and manufacturing, the value can be directly correlated to results.  But what about roles in marketing or operations, where measurability isn’t so immediately apparent?

One sees a lot of research figures from surveys documenting how much more contribution a high performer provides versus an average or low performer, such as the one put out by VitalSmarts in 2017.  But as in this one, rarely is the formula for computing such shown.  Thus, the conclusions can be deemed as very subjective.  But finding a way to accurately measure employee contribution, in revenue, is essential to calculating the costs and benefits of any company’s retention and recruiting efforts.

TrenData’s QPeX Methodology

To provide further granularity on revenue per employee and to establish accurate measures for employees in specialized areas, TrenData developed the QPeX Methodology to more accurately attribute revenue per employee based on performance.

The Quantifiable, Producer, eXtrapolated (QPeX) methodology starts by taking revenue or other measurements from roles where production can be exactly measured, such as sales or perhaps manufacturing.  It then spreads those values to other roles that are less defined by using some common criteria, such as performance reviews.

  • Quantifiable: If using sales production as the gauge, quantify the total amount of revenue for a given period. For this example, we’ll use $100 million.
  • Producer: If grading salespeople on the same scale as the rest of the population, identify the total amounts sold by those in each performance category.

 

Sales
Performance Evaluation Total Sales in Dollars
Exceeds Expectations $60,000,000
Meets Expectations $35,000,000
Below Expectations $5,000,000
  • eXtrapolate: Apply these dollars across the organization based on each performance category

 

 Company
Performance Evaluation Total Sales in Dollars Number Employees Revenue per Employee
Exceeds Expectations $60,000,000 200 $300,000
Meets Expectations $35,000,000 400 $87,500
Below Expectations $5,000,000 200 $25,000

 

QPeX Considerations

 In applying the QPeX Methodology, HR and business leaders should keep a few key points in mind:

Accurate Reviews are Essential

The QPeX Methodology relies on business leaders providing accurate reviews. For non-revenue producing departments, bloated performance reviews can mitigate the accuracy of the value, and the equity in organizational resources and valuation. If 10% of the IT department receives a rating of exceeds expectations, but 90% of the finance department receives the same, the accuracy of the metric is diluted.

Organizations can combat this risk by training managers on company standards for performance reviews, requiring departments to establish and communicate measurable goals, and ensuring organizational oversight.  The adoption of a people analytics platform that allows HR and business leaders oversight into department-level talent data can be a great monitoring tool.

The QPeX Methodology enables organizations to more accurately visualize the value high performers bring to the organization so they can plan their efforts accordingly.  The goal is to target retention and recruiting efforts at those who are moving the company forward, and not waste compensation, training, and other perks those who are not.

Think ahead

Applying QPeX is only the first step. Armed with an accurate revenue-per-employee measurement that can be applied across all job positions, HR leaders are better able to leverage AI-powered predictive analytics to target talent initiatives that will yield the highest financial return.  Show a CEO or CFO a plan that yields quantifiable revenue increase or costs savings and you‘ll have their attention.

If you have questions about the QPeX Methodology or wish to learn more about the value TrenData’s advanced, predictive AI-driven people analytics platform, contact us today at https://www.trendata.com/contact-us/ or schedule some time with us using the calendar app on this page.