Why more marketers need to advocate for revenue per employee (RPE)
As marketing executives, we often talk about key performance indicators (KPIs). Leads, MQLs, CAC, LTV, ROAS, ARR. There’s no shortage of acronyms.
But there’s one I found missing from most marketers’ vocabularies (and it’s one of the KPIs that matters most) — revenue per employee (RPE).
In a recent straw poll on my LinkedIn, 73% of respondents said their companies are not measuring RPE. RPE measures how much revenue a company generates divided by its total headcount. The higher the RPE, the more efficient and profitable the business.
The largest and most successful tech companies have incredible RPE, ranging from the high six figures for companies like Microsoft and eBay, to $2 million+ for the largest company in the world, Apple.
Much to my chagrin, RPE is not being utilized by many companies even in the current economic environment, where the tech industry has an increased appreciation for efficiency and profitability. In fact, only 27% of the companies I polled stated that they use RPE as a KPI, and nearly a third of those surveyed had never even heard of it.
The problem for most companies, especially those in SaaS, stems from a continued narrow focus on topline revenue and a "growth at all costs" strategy. This approach often leads to an emphasis on KPIs that support just revenue, such as new annual recurring revenue (ARR) for sales and marketing sourced pipeline (MQLs and SQLs) for marketing.
To achieve the ARR target, the Chief Revenue Officer (CRO) typically looks at the average closed-won rate (based on the number of opportunities each salesperson works) and the annual contract value (ACV). The CRO then multiplies the two and figures out how many salespeople are needed to hit the target. The consequence of this approach is that the Chief Marketing Officer (CMO) focuses entirely on generating pipeline and little else.
The CMO calculates how many raw leads convert into qualified leads (MQLs) and then how many MQLs convert into sales opportunities (SQLs) and sets targets for those KPIs accordingly. Unfortunately, this approach often leads to the realization that an unattainable number of raw leads is required for sales to hit its number, as the cost of doing so would be s a thousand times larger than the marketing budget. As a result, sales and marketing will fail to hit their KPIs, and the CMO and CRO are left to explain to the CEO and Board that they can't possibly hit the revenue number.
It’s a lose-lose for all. But it doesn’t have to be this way. If companies set RPE as their north star, they can focus more on developing powerfully efficient teams instead of hiring armies of sales people to hit their goals.
By aligning around RPE, the CRO and CMO can improve three other more valuable and strategic KPIs: ACV, closed-won percentage, and velocity. When these metrics improve, salesperson productivity goes up, and RPE goes through the roof.
When salespeople start closing more deals, faster, and at higher average deal sizes, it can be attributed to a few different factors. They may have taken courses that turned them into better sellers or maybe they just woke up one day and became a bunch of Rambos. However, the likeliest cause is that they are reaping the benefits of a marketing program that's making their jobs a heck of a lot easier.
Now is the perfect time for CMOs to showcase marketing as a strategic driver of the business, not just a leads factory. Most businesses struggle to scale revenue without adding a significant number of people to their teams, which is why they are forced to layoff employees during downturns. Businesses that focus on RPE and the metrics that matter are already emerging as winners during this downturn. This is the key to long-term success for any company.
About the author
With more than 20 years of experience, Jordan Cohen is a seasoned B2B marketing executive with a track record of leading companies in mar-tech, ad-tech, media and e-commerce to industry dominance, VC raises, acquisitions, and IPOs.
As founder of The Fox Hill Group, a CMO-led marketing management consultancy, he spearheads marketing programs for tech start-ups ranging from launch phase to scale-ups gearing up for exit events. Prior to founding his firm, Jordan served as CMO of Fluent, an ad-tech scale-up that exited in a 9-figure deal and then IPO’d, and before that he served as the first VP of Marketing for Movable Ink.
You can read more from Jordan in his newsletter, Food for Naught.
