Why the denominator matters
Revenue per employee is easy to compute and easy to compare, which is why it appears in benchmark reports and board packs. In a services firm it hides the thing you need to see. Hire a salesperson, a finance lead and an office manager, all of them necessary, and revenue per employee falls while nothing about the billable work has changed. Divide by the people whose time you actually sell and the number becomes an instrument: it moves only when rate, utilisation, realisation or collection move, and those are the four things a founder can manage.
At DevOpsGroup, a services company helping other businesses build and run software, I spent years reading the wrong version of this number. When we switched the denominator to billable heads and set the target from our own cost base rather than from a survey, the conversation in the management meeting changed in a month. The gap had a size, the size had four parts, and each part had a name on it.
Setting the target from cost, not from a benchmark
The target is arithmetic, not ambition. Take what a billable person costs the firm for a year, fully loaded. Add the overhead that person has to carry, which is everyone and everything that does not bill, spread across the people who do. Divide by one minus the gross margin the business needs to fund growth, absorb a bad quarter and pay its founders. That is the revenue each billable person has to bring in for the business to work as designed. If your actual number is below it, the firm is being subsidised by somebody: the founders, the bank, or the future.
The four leaks
Rate is the gap between the card and what was actually sold, across the days billed; it is usually the founder's leak, because the founder is usually the one who discounts. Utilisation is the available days that were never billed, valued at the sold rate; it belongs to delivery and resourcing, and it is normally the largest. Realisation is the work delivered but never invoiced, discounted after the fact or written off; it belongs to account management, and it is the one nobody measures until they do. Collection is invoiced value that did not arrive; it belongs to finance and it is the smallest, until the month it is not.
A worked example, invented
The defaults on this page describe an invented firm: £1.2m of revenue in twelve months from nine billable people in a headcount of thirteen. Revenue per employee reads about £92,000, which looks respectable. Revenue per billable person reads about £133,000, and the target from the cost base is about £169,000, so the firm is roughly £36,000 short per billable person, about £323,000 a year across the team. Of that, utilisation is by far the largest leak: seventy days a year per person that were available and never billed.
What this does not do
It does not tell you which of the four leaks to fix first; that depends on who owns each one and how quickly it can move, which is the subject of the revenue per billable person playbook, in development. It runs the company as a single unit; the model that ships with the playbook runs it at company, division, team and deal level and reconciles them. The definitions of revenue per billable person and utilisation rate are in the glossary. Nothing is for sale yet; joining the list gets you told when it is.