Hi,
This week, let’s dig into a metric that can completely change how you view your business: Gross Profit per Employee.
At Brex, we had an interesting realization recently. August and September both brought in solid revenue months. Revenue per employee? Consistent. Employee count? The same. At a glance, it seemed like we were on track. But, when we looked at Gross Profit per Employee, we saw a very different picture. In fact, September's gross profit per employee was half of what it was in August.
So what was going on? Why would our gross profit drop when revenue and headcount stayed stable? Were we 1/2 as efficient?
Before diving into the "why," let's get clear on what Gross Profit per Employee actually means—and why it’s so much more telling than revenue alone.
What is Gross Profit per Employee?
Gross Profit per Employee (GPE) is the average profit each employee generates after covering the direct costs needed to complete the work. This number helps reveal not just how much revenue your team is bringing in, but how efficiently they’re converting that revenue into actual profit, given your unique cost structure.
Calculating It
Here’s the formula:
Gross Profit per Employee = (Revenue - Cost of Goods Sold) / Number of Employees
To break it down:
Revenue is your total income from services.
Cost of Goods Sold (COGS) is the direct cost tied to providing your service—labor, materials, and any subcontracting expenses.
Number of Employees accounts for everyone who plays a part in delivering on projects or services.
Why It Matters
While revenue per employee shows us how much income each employee theoretically brings in, gross profit per employee actually measures the value retained after direct costs. This means GPE is a far more insightful metric for understanding efficiency, costs, and profitability per team member. aka .. how much profit did each employee bring in?
Why Did Our Gross Profit Drop?
In our case, our GPE dropped 50% from August to September because we had a project with significant subcontractor (COGS) costs. We also faced a slower month, with more project transitions, meaning we didn’t have the sales volume needed to maintain our previous profit per employee.
Why is this important?
Because this insight gives us a foundation for making efficiency adjustments going forward. We can ask questions like:
Should we place an extra person on a job just to keep them busy, or should we manage resources more strategically?
Are there areas where we can be more efficient on specific projects?
Did we miss billing for any change orders that could impact our overall profit?
Tracking these details monthly—or even weekly—can help put effective controls in place, giving us the power to proactively manage costs and keep our profits strong.
Here's your challenge for the week:
This week, I challenge you to calculate your Gross Profit per Employee for the past three months.
When we first started tracking this, I wasn't sure what the ideal amount is, but through making changes and seeing trends over month, you're able to evaluate and set a target where your business should be.
So see what trends emerge and consider what’s driving them. Is this number aligned with your business goals? Are there cost factors you hadn’t noticed before?
Sometimes, a single metric can transform how you approach your operations. Don’t wait to find out what yours is telling you!
On 11/11, we will be having our 2nd READY for Growth session and I'll be running through understanding your P&L, with insights on what metrics to pull. It's free so sign up today!
Here's to less hard days, constant growth, and a clear path forward. Proud to have you on #TeamLoseNoProfit as we build a business that works smarter to support our goals. Together, we thrive 🚀
Alicia Brentzel
Founder, From the Cut
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