Average revenue per manufacturing employee?

Factual Questions
1

I saw this AP story about ConAgra’s peanut butter factory, currently closed after the salmonella outbreak. Two other things caught my eye, though. The factory has about 100 employees, and generated about $150 million annually in peanut putter sales. Meaning that each employee, by a calculation I’m not sure has much meaning, is worth about a million and a half dollars a year revenue to ConAgra. Possibly more, as the factory might have produced other products that weren’t referred to in the article.

Is this a high, low, or basically meaningless number for a large manufacturer?

2

To the bean counters, labour is an expense in the same way that the peanut crushing machine is an expense; the same way that the maintenance on the peanut crushing machine is an expense; the same way the cost of power to the processing plant is an expense; the same way that the administrative staff is an expense; the computers…

At the risk of skipping a number of steps of this analysis and oversimplifying everything - at the end of the day, the expenses are subtracted from the revenues and the return on investment (profit margin) is examined. If it is acceptable relative to the amount of financial risk associated with the activity, the activity is likely to continue.

To answer your question - meaningless.

3

Of course it isn’t meaningless, it’s a perfectly valid question. After all, it’s simply a case of wondering whether that ratio is higher or lower than one would find in the average of a set of other businesses - be it all businesses, or just a particular type of business. You can’t run a business using only that number or anything like that, but it’s one of thousands of numbers that are worth looking at. Companies can and do worry about gross revenue, too, and the ratio of gross to employees is a meaningful ratio (in some business more than in others.)

The answer to the OP is that it’s REALLY high. I’ve seen many, many businesses and have never seen such a high ratio of gross revenue to employees.

4

Any comparisons among “large manufacturers” are like apples to… peanuts.

The amount of automation used in a plant is the significant indicator. Some industries are highly automated; some are not.

If you could find the earnings per employee for another peanut butter plant then you might have a valid comparison.

5

**Exapno Mapcase **, excuse me for mis-stating my interest, I was not looking for a primer in expenses vs. revenues. Rather than asking if this particular statistic is meaningless, I should have asked whether this statisic is used as a benchmark for any kinds of financial analysis. Say – if you are trying to assess profitability, or efficiency, related to your workforce.

Your answer suggests the answer to this question is “no”, but I thought I should clarify the question.

6

No, the amount of revenues per employee is absolutely used as a measure of productivity, although I think it’s usually used for a company as a whole, not just a manufacturing plant. (There are probably a lot of HR and other staff employees who work elsewhere but not actually involved in production so they’re not actually producing any revenues.)

7

It’s probably true that this factory woulsn’t have whole levels of administrative staff, the functions of which would be done in some other corporate administrative facility. But that should simply the calculation of actual manufacturing costs vs administrative overhead costs.

8

Would think that measuring products produced per man-hour/day/week is a more valid measure of productivity in the manufacturing side of things. Post-production, a number of things will be factored in for revenue and expenses, all out of the hands of the manufacturing employee. Using final revenue numbers introduces more variation/variables to cloud up a measure of an production employee’s value.

9

Suppose I wanted to know this number. and looked at corporate annual reports. Would there be enough information for me to calculate it? Do corporations report to such a level of detail as to how many employees work for each corporate entity, and provide similar revenue breakdowns?

10

I don’t know about employee breakdown, but you can usually see this number under Accrued Expenses in a company’s balance sheet.

11

I disagree, I think the figure is meaningless (unless you’re a employee, who does not understand business), or are easily impressed by big numbers.

All the peanut butter in the world is no good without the other departments to make stuff happen - sales, distribution, buyers of raw goods, packaging, support staff, plant equipment, rent, electric, insurance, etc. As quest mentioned, the nature of the cost is not that relevant.

I guess rather than meaningless, the figure is just as meaningful as their $150m income pased through four PeanutCrusher2000 machines, so that’s value of $50m per machine.

Interesting, maybe. Relevant, not at all.

However, if you were comparing it to last year, when you had half as many people but only a quarter of the income, then it’s kinda relevant. Of if you’re comparing that company to another company in the same line of business.

But I suspect there would be better indicators of productivity than staff numbers and gross income.

12

It’s really partly meaningful. You’ve got to consider only direct labor though, i.e., people that add value to the product – everyone else is overhead (some accounting people call direct labor overhead, too). Also, $150 million is not profit for that plant, but revenue. So let’s just say that margins are 10% and only 70 of those people are direct labor. Now it’s completely valid to say that the productivity of the plant is $214,285.71 per person. That’s considerably less than the value in the OP, and is a useful benchmark when comparing that plant’s productivity versus other plants in the same company.

13

I disagree. IME, the numbers are entirely useful, as one small part, of analyzing a business’s productivity and/or profit. By themselves, they tell one small part of the overall story, and when combined with other ratios, tell the complete story.

Revenue per Employee
When all employees are considered, this may be useful as an internal performance metric for this plant, and may be compared to other Con Agra Plants that make Peanut Butter. Further, outside organiaztions publish data like this—both trade groups and companies like Robert Morris Associates or McGraw-Hill, etc. This may be useful in comparing this plant with industry productivity norms.

If the employees work varying levels of overtime, changing this to Revenue per Full Time Equivalent (FTE) (Total payroll hours worked divided by 40) may be a better measure of productivity.

Revenue per Direct Employee (or Direct FTE)
“Direct” employees, as part of “Direct Costs” or “Cost of Goods Sold”, are the employees (or hours) spent directly used in making peanut butter. If Revenue per [overall] Employee is a macro view, Revenue per [direct] employee is more of a micro view. It’s not more useful, just useful in a different way. It is a finer detail view of the direct costs and it’s productivity. Revenue per Direct Employee is one of 2 parts; the other being,

Revenue per SG&A Employee (or SG&A FTE)
Most P&Ls are structured with categories called Sales, General and/or Administrative (SG&A); commonly called “overhead.” If overall revenue is compared to Revenue per SG&A Employee , I can determine how efficient (productive) labor is.

The real value in these numbers comes into play when they can be compared to an established benchmark and a trend can be established.

Examples:

  1. Where do my numbers compare to other Con Agra plants?
  2. What about other peanut butter manufacturers?
  3. Where do they compare to our own plant’s history?
  4. If revenue grows at 10%, is revenue per employee (by any measure listed above) growing at 10% (or better) as well? If not, then costs are growing at a rate greater than sales growth; a red flag that productivity is lagging.
  5. Comparing the ratios, I can see how much operations is needed (or is being used) to support SG&A. Over time, I can determine if the overhead structure is productive or bloated.
  6. Compared to other plants (and as a less useful metric, other industries) it tells me [loosely] how labor intensive the company is. This company would appear to be highly automated, and perhaps less vulnerable to labor issues. (and perhaps more vulnerable to other things, like capital investment needs)

A commonly used variation of this is “Sales Per Man Hour” (SPMH) (as a cousin of Sales per Employee and Sales per FTE) which is used in many industries, including service companies, small businesses, and restaurants, for example.

No one ratio tells you everything. You use several as part of comprehensive analysis of the business, month to month, and quarter to quarter. But if I was the manager of this plant, I would want this information.

14

Probably not. ConAgra is rare in having exactly one plant devoted to a business function. You wouldn’t see employee breakdown per plant or product output per plant in a normal annual report.

As for your earlier question, I have seen output per employee used as an indicator fairly regularly when reading articles in the business press. You would certainly use it as an example of efficiency. (It is used in other ways as well. In a recent article on Wal-Mart, a honcho quoted profits as $6400 per employee and then said that a $2/hour raise across the board would therefore wipe out two-thirds of the company’s profits. This is one of those “how many things can you find wrong in this statement?” exam questions, IMO, but the point is that per employee numbers are often stated.)

However, the number has no meaning in and of itself. You can only use it as a comparative number against something similar. Is Wal-Mart’s $6400 profit per employee good? You can’t say unless you look at other numbers. If it turns out to be 1% of total earnings, that’s not so good. If it is higher than last year, that’s good. If it is higher than Target, that’s good. If Intel has a profit of $10,000 per employee, that’s meaningless in the context of Wal-Mart because you can’t compare the two.

Same for productivity per employee. The number only becomes meaningful when placed in the proper context. Financial analysts who have access to the source data may find this number useful, but it isn’t anything that would be normally used in assessing a corporation’s performance because there are so few instances where the data is available in and among similar companies.