What is Headcount Efficiency Ratio?

Payroll usually makes up the biggest slice of your budget. For most teams, people costs are about 70% of spending.

The important question to ask isn’t “are we hiring?” but “does everyone we hire actually help us move forward?”

That’s where the headcount efficiency ratio can help out. It shows how much revenue each full-time equivalent (FTE) brings in. This is a simple number number thats clear, and tells you if you’re scaling productively or just piling on costs without getting results.

We’ll break down what this ratio means, how to calculate it, benchmarks to know, and common mistakes. You’ll see how to build and track this metric in Runway. No more static, backwards reports. Make this a live part of your financial planning.

Understanding the headcount efficiency ratio

Headcount efficiency ratio measures revenue per FTE. Here’s the formula:

Revenue per FTE = total revenue ÷ total FTEs

It shows how well you use your team to hit your goals. It’s a lever, not a vanity metric. Your finance team can use it to make smart choices about people, identify productivity gaps, and shape hiring or structure.

You’ll want to track this every quarter, and keep tabs on monthly changes to headcount. It works best when you follow the trend and break it down by department or role.

Why this metric matters to finance teams

Revenue per FTE connects your biggest cost, people, to your main output: revenue.

Here’s why it's important:

Resource allocation: See where to invest in people and where to pause hiring
Hiring strategy: Know if new hires increase output or just bump up costs
Operational efficiency: Spot which teams shine and which need a hand or a rethink
Investor expectations: Investors watch this to check if you’re scaling the right way
Burn rate management: If revenue goes up faster than headcount, you protect your runway

Track this number and it becomes a core planning input. Use it to test scenarios. For example, “what’s our ratio if we add 10 engineers?” or “how did this change since last year?”

Common calculation methods

There’s more than one way to do this. Pick the approach that fits your business model and what you want to measure. Here are five common methods:

Standard revenue per FTE

This one’s the simplest. Total revenue divided by total FTE. It’s fast, easy to explain, and works for broad benchmarks.

Formula: total revenue ÷ total FTEs

Keep in mind, this treats each person equally. A senior sales rep and a junior support specialist both count as 1.0, even if their impact isn’t the same. Use this to get a quick read or compare to industry norms.

Department-level efficiency

This approach looks at revenue per FTE by department. Find out which teams drive the most value.

Formula: annual revenue ÷ number of employees in each department

For example, separate your sales and engineering teams. This view tells you where efficiency is high and where you might invest in better tooling or process improvements. Use it for smart resource allocation.

Revenue-generating vs. support staff

This one breaks out revenue-driving teams (like sales, customer success, account management) from support functions (finance, HR, IT, legal).

Calculate a ratio for each. Get a clear view of how your go-to-market team performs compared to overhead. You’ll need to define which roles count as “revenue-generating.” Sometimes product and engineering fall into a gray zone. Once you set clear rules, you’ll get sharper insights than with a blended number.

Fully-loaded cost method

Here, use total compensation and benefits instead of just headcount. Think salary, payroll taxes, benefits, overhead, and more.

Formula: total revenue ÷ total fully-loaded labor cost

This method better reflects true cost efficiency, especially if pay and perks vary across your team or geography. It’s a bit more work to calculate but gives you a real picture if you compare across locations or want to see how pay changes play out.

Hybrid, productivity-adjusted approach

This method weighs people differently by title, role, or output. Maybe a senior engineer scores as 1.5 FTE and a junior engineer as 0.75, for example.

You get a closer read on real-world productivity. It takes some judgment to set weights and keep them consistent, but it pays off when modeling how team composition changes (like hiring more experienced folks) affect output.

Key factors to consider

Accurate headcount efficiency needs smart setup. Here’s what you should consider:

Defining FTEs: Clear, consistent definitions matter. Count full-timers easily, but convert part-timers and contractors to FTE. For example, a 20-hour-per-week contractor is 0.5 FTE.
Selecting revenue metric: If you’re SaaS, use ARR. Other businesses may use net revenue, total revenue, or even gross profit. Stick with one and use it over time and for peer benchmarks.
Measurement period: TTM (trailing twelve months), annualised current run rate, or projections all work. TTM smooths out seasonality. Pick what fits your needs and keeps things stable.
Ramp time for new hires: New folks don’t hit full stride on day one. Sales pros may ramp for months. Adjust calculations if you want short-term accuracy.
Separating revenue and G&A: Measure revenue teams by their direct top-line impact. For support functions like finance or HR, look at G&A headcount compared to revenue (like 1 FTE per $2-5M in revenue is common at scale).
Handling seasonality: If business swings by season, use average FTE in the period, not just an end-of-quarter snapshot. You’ll avoid skewed results.
Organisational changes: Mergers or big restructures can skew your numbers. When these happen, calculate separately before blending in acquired teams.
Long sales cycles: If sales take months to close, headcount investments now might not show up in revenue until later. Use forward projections or look at a longer measurement period.

How this ratio connects to your broader metrics

Revenue per FTE lines up with almost everything in your model and ops plan.

Operational leverage: If you scale well, this ratio improves. It means you’re driving revenue faster than you grow the team. It’s a positive signal.
Headcount planning: Use revenue per FTE as a starting point. Know your target? You can figure out how many people you’ll need, or how much more efficient you must be.
Compensation benchmarking: Compare with fully burdened labor rate to check if your pay and benefits are both competitive and sustainable.
Organisational design: The ratio shows you where to focus. If engineering shines but sales lags, you know where to allocate resources.
Growth efficiency: Revenue per FTE works with metrics like Rule of 40 or burn multiple. Together, these show if you’re scaling profitably or just adding cost.
Investor expectations: Investors look for teams that improve this number year after year. That’s proof of discipline and strong execution.
Departmental productivity: When you segment, you’ll spot which teams are crushing it and where to dig deeper or offer support.
Scaling readiness: Teams that keep or improve their ratio as they grow are set up to scale. If yours slips, it’s time to look closer and take action.

Benchmarks and typical ranges

Benchmarks shift based on business model, industry, and stage. Check out these guidelines based on recent SaaS industry data.

SaaS companies at scale

For private companies, the median sits around $130,000 per employee. Top performers hit $200,000 and up. Public SaaS often targets more than $450,000 per employee.

Early-stage startups

Expect $100,000 per FTE when you reach $1M to $3M ARR. Efficiency climbs as you nail product-market fit and processes.

Growth-stage companies

At $20M to $50M ARR, the median holds steady at $175,000. This moves closer to $200,000 once you hit $50M to $100M ARR.

Bootstrapped vs. equity-backed

Bootstrapped players usually see higher efficiency. They average $110,000 per FTE at $1M to $3M ARR compared to $94,000 for equity-backed peers.

By funding stage

Seed and Series A might range from $100K to $250K per FTE. Series B targets $250K to $500K. Series C and beyond aim for $500K to $1M or more as growth outpaces headcount.

By function

Track engineering and product teams separately. Enterprise-focused teams show higher revenue per FTE than SMB models. G&A usually targets 1 FTE per $2M to $5M in revenue.

Year-over-year improvement

Top teams boost revenue per FTE 10% to 20% every year as processes and tooling improve.

Pitfalls to avoid

Tracking revenue per FTE is simple, but there are ways to miss the mark. Watch out for these mistakes:

Inconsistent FTE definitions: Count all contributors be it full-time, part-time, contractors. A broad, clear definition keeps results real.
Not normalizing for ramp time: New hires can weigh down short-term numbers. Instead, follow trends over time or make adjustments for people in ramp-up.
Comparing incompatible models: Don’t stack your number against wildly different businesses. Pick peer companies with similar pricing, customers, and cost structures for honest benchmarks.
Ignoring revenue composition: Price bumps and real productivity gains look similar in the math. Always segment your analysis so you know what’s really changing your ratio.
Not segmenting by department: A company-wide ratio hides the details. Always break it down to uncover team-level wins or gaps.
Treating all headcount equally: Senior folks typically contribute more. Weight by role, seniority, or comp if you’re making decisions on this data.
Using point-in-time headcount: Single snapshots mislead. Average FTEs over the whole period tell a truer story.
Not accounting for investment lag: Revenue often trails hiring, especially in sales and product. Expect short-term dips during growth spurts. It’s often strategic.
Overoptimizing the metric: Don’t cut key investments just to hit a number. Revenue per FTE is a guide, not the end goal.
Ignoring retention revenue: Teams like customer success drive expansion and retention, not always captured in simple calculations. Capture the big picture.
Not adjusting for one-time events: One-off deals or big churn can throw off your data. Normalize to see true trends.
Forgetting about automation and tooling: Tech and process improvements also drive gains. Map these so you know what’s working.

How to track headcount efficiency ratio in Runway

Runway makes it dead simple to track revenue per FTE as a live, rolling metric. As your headcount and revenue forecasts shift, the math updates so no manual fiddling required. Here’s how to set it up:

Step 1: Set up your employee database. Pull in your people data via HRIS, Google Sheets, or a quick manual dump. Include start dates, termination dates, department, role, location, and FTE status (1.0 for full-time, 0.5 for part-time). Get the full details in our headcount planning guide.
Step 2: Create a headcount driver. Build a driver that counts employees by department or company total. Use count(Employees) with the right date filters. That gives you a rolling FTE number to use as your denominator.
Step 3: Connect your revenue metric. Use your ARR driver or pull your revenue from the P&L. Match the revenue metric to your measurement period (monthly, quarterly, or TTM).
Step 4: Calculate revenue per FTE. Add a "Revenue per FTE" driver: Revenue / Headcount. Runway handles the math each month. Use ifError() to manage months with zero headcount.
Step 5: Segment by department. Use dimensions to break down by department or function. Create segmented drivers with filters (for example, count(Employees) where Department = "Sales"). This lets you see team-level efficiency.
Step 6: Build a page for your stakeholders. Use Pages to make an at-a-glance dashboard. Chart your revenue per FTE, view trends, and display underlying data. Reference live driver values right in your writeup by typing @ then the driver name.
Step 7: Model scenarios. Create “what if” scenarios fast. What if you add ten engineers this quarter? What if you hit your boldest revenue goal? Runway lets you see the impact right away.
Step 8: Track actuals vs. forecast. As real data flows in, Runway stacks it against your plan. Spot where you’re ahead (or lagging) and tune hiring in real time. It works just like our headcount forecast vs. actuals tool for salary.
Step 9: Benchmark and iterate. Add industry benchmarks to your dashboard and compare your performance to the field. Track this quarterly. Review it with your leadership crew and use it to make concrete plans.

With Runway, this number is wired into your financial model. Change your hiring plan, your efficiency number updates. Every figure traces back to its source, so you can drill down any time.

Start monitoring your headcount efficiency ratio

Revenue per FTE is one of your most powerful tools to check if your team is scaling the right way. It connects people costs to output and turns hiring, allocation, and strategy into measurable actions. Watch the trend and you’ll know early if you’re on a path to profitable growth.

This metric works only when it’s accurate, up to date, and tied to your financial model.

Runway lets small, scrappy teams, model owners, and planners who need scenarios take charge. Build your revenue per FTE as a live metric, split it by department, run models, and share everything in one spot.

If you want to start tracking your headcount efficiency ratio and make it a living part of your financial planning, book a demo and see how Runway can help your team plan smarter.