The Software Industry's Productivity Boom: Analyzing Revenue per Employee Trends
Recently, I was on the HR Heretics podcast and we talked about the increasing efficiency of software companies (in addition to other topics including the implications of AI for executives, how to diligence a candidate, & what board members expect of their people leaders).
I realized It has been a decade since I’ve updated revenue-per-employee metrics.
Here are the trends across the group of 13 publicly traded software & infrastructure companies (which are the fastest growers or most-highly valued) over the last 5 quarters.
Revenue per employee spans approximately $100k-$400k. Salesforce tops the list. ServiceNow, Workday, & Veeva round out the top 4.
Compare that to the benchmarks in 2013! In addition to the dated charts!
In 2013, the average revenue per employee of these companies totaled $200k. Today, that number is $470k for the basket of companies above, a 135% improvement.
Normalizing for inflation (which was 34% during this past decade), modern businesses produce 2x more RPE than their decade old selves.
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Most companies in the image have been acquired. The four horses of the previous decade that still run free, I’ve listed above. RPE for the group grew from 1.8% to 9.6% per year.
In 2023, these companies added about $21k in revenue per employee, but the range spans $13-29k.
The reality is most companies do not grow revenue-per-employee per year linearly. Here’s a rough estimate of RPE over time.
For these publicly traded companies, there’s a slow decline in growth rate but the combination of product-market fit & the opportunity to expand the product portfolio allows them to keep expanding revenue per employee at attractive rates.
I wonder what trends we’ll see in 2033. Perhaps another doubling (driven by AI!)
2023-11-14
SaaS Company? I’ll rewrite your vague landing page into a clear, conversion-focused page in 7 business days.
1 年What are some of the most significant changes or trends you've noticed in these metrics over the past decade Tomasz Tunguz?
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1 年Everything in this life is double-edged: good and bad, so I believe that artificial intelligence has pros and cons????
Architecting complex enterprises
1 年Yes, CRM with LLM AI can cut expenses and double revenue per employee if it stays competitive. For the majority of listed software companies it may be doubling in 3-5 years per employee. The headcount though will be probably reduced.
Managing Partner / Co-Founder at Channel Equity Partners | CFA
1 年It would be helpful to also see the "cost per employee" increase over that same period of time. The 2x increase in rev/employee gain cited above might have been entirely eaten up by salaries, benefits, etc. inflation over the last decade. Other than a handful of strategic exits, most software companies are bought for current and future profit streams. It will be interesting to see which companies can demonstrate financial value in an economic environment where there is a "cost of capital" as there hasn't been much of one the previous decade.
COO @ Pipe17
1 年I wonder how big of an impact generative AI will have once it's more widely used