What revenue per FTE is
Revenue per FTE (الإيراد لكل موظف بدوام كامل) is an organisation’s revenue for a period divided by the number of full time equivalents (المكافئ للدوام الكامل) in that period. It is the capacity based form of revenue per employee: it states how many riyals of revenue correspond to each full unit of work, not to each person.
The part of the ratio that needs care is the denominator. The numerator is an accounting figure that already exists. The denominator is a decision somebody makes, and everything said about the result afterwards depends on that decision.
Why revenue per FTE counts equivalents rather than heads
A headcount counts people. A full time equivalent counts capacity: someone who works half the full schedule is counted as a half. The difference between the two is not cosmetic, and the same distinction arises in the employee growth rate, which can also be counted in people or in full time equivalents.
Take an organisation with annual revenue of SAR 48,000,000 and 120 people: 100 full time and 20 on half the full schedule.
- Denominator by headcount, 120: 48,000,000 divided by 120 gives SAR 400,000.
- Denominator in full time equivalents, 100 plus 20 multiplied by 0.5, which is 110: 48,000,000 divided by 110 gives SAR 436,364.
The gap is about 9% in an organisation where one person in six works half time. The second figure is the correct one, because the question concerns the capacity that was put in, not the number of people who received a salary.
These figures, and every figure in the examples below, are illustrative. In the sources we reviewed, we found no published averages of revenue per FTE for the Saudi market that could be carried over to another organisation or used for comparison.
How outsourcing distorts revenue per FTE
Revenue per FTE can improve through a decision that has nothing to do with performance. Suppose the same organisation outsources thirty units of work to an outside provider. Revenue stays at SAR 48,000,000, the denominator falls to 80, and the result becomes SAR 600,000. That is an apparent improvement of about 37.5%, with not a riyal of extra revenue and not an hour less of work performed.
The reason is that the cost of those thirty units has moved from the payroll line to another expense line, and they have left the denominator. The ratio sees only the people on the organisation’s own records. Anyone who wants a figure that can be compared across years has to settle on one rule and keep to it: either include outsourced labour in the denominator at its full time equivalent, or exclude it, and exclude it in every year used for comparison. The definition of revenue per FTE does not decide between the two. What matters is that the rule stays fixed and that it is disclosed alongside the figure, because a figure published without its denominator rule cannot be compared with anything.
The same question arises when a worker is registered with one establishment and performs the work for another, as with a non Saudi worker outsourced to another establishment through the Ajeer (أجير) programme of the Ministry of Human Resources and Social Development. The capacity is spent in the establishment that benefits from the work, while the worker belongs to the establishment that provides them.
Who counts in the revenue per FTE denominator
An organisation can contain people whose legal status differs: a worker under an ongoing employment contract, a part time worker, a casual, seasonal or temporary worker, a person who performs the work while registered with another entity, and a trainee under a qualification and training contract. Article 5(4) of the Saudi Labor Law (نظام العمل) names qualification and training contracts with persons who are not the employer’s workers, and brings them within the Law only within the limits of the special provisions it sets for them. Those provisions are in Articles 45 to 49 of the Labor Law, and Article 49 of the Labor Law lists the provisions of the Law that apply to such a contract.
One error at this point is to build the denominator on legal status, counting those to whom the Law applies and leaving out those to whom it does not. That mixes two questions. Legal status decides which rules apply to the person doing the work, which is a matter of rights and obligations. The denominator measures the capacity spent to produce the revenue, which is a matter of measurement. A trainee working forty hours a week has contributed full capacity whatever their status, and a worker under an ongoing contract on a quarter of the full schedule has contributed a quarter.
The practical rule, then, is to build the denominator on hours, not on the type of document, and to disclose who was included and who was left out. This remains a management choice, not a legal one. We found no provision in the sources we reviewed that prescribes a method for calculating revenue per FTE or defines its denominator, and the measure lies outside the subject matter of the Labor Law. Revenue per FTE is a management measure, and in those sources we found nothing that attaches to it, in itself, a consequence for an employment contract or an obligation on the organisation.
How the monthly revenue per FTE series is built
The average denominator is not built from the month end payroll statement alone, because that statement lists the people who were paid, not the people who worked. A dependable sequence has three steps. First, add up the contracted hours of everyone who worked in the month. Second, divide that total by the full time hours the organisation has set for that month, which gives the month’s full time equivalent. Third, take the average of the months in the period.
The hours meant here are the contracted hours, not the hours actually worked. Putting overtime into the denominator makes an organisation that works its staff beyond their capacity look lower on the measure, which is the reverse of what the figure is meant to convey. Absence and leave are not subtracted either, because the post was filled and its cost was still being carried. For people whose work is not measured in hours, the convention for computing a full time equivalent can differ from one organisation to another, and the convention used is another item to state with the figure.
Why revenue per FTE needs an average denominator
The numerator is a flow that builds up over the period. The denominator is a stock measured at a moment. Dividing a full year’s revenue by the number of employees on 31 December divides twelve months of earnings by a snapshot of a single day.
The remedy is to use the average full time equivalent over the period, measured monthly and then averaged. The effect shows in an organisation that grows or shrinks quickly. One that starts the year at 80 full time equivalents and ends it at 140 has an average of about 110, if the growth is spread evenly across the year. Dividing by 140 shows a worse result than the year produced, and dividing by 80 shows a better one. Each of the two denominators is 30 away from the average, in opposite directions, and neither gives the correct figure.
Two equal revenue per FTE figures from opposite situations
Consider two organisations that both report revenue per FTE of SAR 500,000 this year. Two years ago the first had revenue of SAR 40,000,000 on 100 full time equivalents, and it now has SAR 60,000,000 on 120. The second had SAR 60,000,000 on 150, and it now has SAR 50,000,000 on 100.
Two years ago they also shared a figure: 40,000,000 divided by 100 and 60,000,000 divided by 150 both give SAR 400,000. So the two organisations started from the same number and arrived at the same number, while moving in opposite directions in between.
The first grew on both sides of the ratio, with its numerator growing faster than its denominator. The second shrank on both sides, but its denominator shrank faster than its numerator, so the result rose. The two organisations share the same figure in each of the two years, yet the two situations cannot be described in the same terms. A slide that shows the figure alone shows something on which growth and contraction look identical. Worse, the figure improved by the same amount in both cases, so had it been a target, both organisations would have met it.
That is why the series is examined rather than a single point, and why the numerator and the denominator are shown beside the quotient. Three numbers say what one number cannot, and showing them costs nothing.
What revenue per FTE does not show
- Profit. Revenue is a numerator from which nothing is subtracted. An organisation that raises its revenue at a thinner margin can see its ratio improve while its position worsens.
- A comparison across sectors. A wholesale business can pass large sums through a small team, and a consulting service can be the reverse. Comparing two sectors then measures a difference in business models, not a difference in efficiency.
- The contribution of any individual. The figure is a quotient for the whole organisation. It does not mean that each unit of work brought in that amount, and attributing it to one person in an appraisal goes beyond what the arithmetic supports.
- A complete picture on its own. The figure becomes useful in a time series for the same organisation, on a fixed denominator rule, rather than as a single number.
Why revenue per FTE does not work as a target
When revenue per FTE is set as a target for the person responsible for human resources, it becomes achievable from the denominator alone, and the denominator is the side that person controls. Reducing numbers, moving work to an outside provider, or delaying the filling of vacancies will each raise the figure at once without adding any revenue.
The practical course is to keep it as a diagnostic measure, one whose movement prompts the question of why it moved, rather than a target that is rewarded when reached. The difference between the two uses lies not in the number but in who can move it, and which side of the fraction they can move. A measure whose denominator is in the hands of the person held to it, while the numerator is not, can then move through its denominator alone.
How revenue per FTE differs from related measures
- Profit per employee. That measure puts a result after costs in the numerator, while revenue per FTE puts revenue before them. The two can move in opposite directions, and in that case profit per employee shows what revenue per FTE hides.
- Human capital ROI. That ratio subtracts the expenses other than workforce cost from revenue and divides the result by workforce cost, so its denominator is money spent on the workforce rather than capacity.
- Cost per hire. It covers what is spent to bring a person in. Revenue per FTE measures the revenue matched with their capacity once they are working.
- A headcount plan (الملاك الوظيفي). It is an approved number planned in advance, whereas revenue per FTE is a ratio measured after the period has ended.
The provisions relied on are Article 5(4) of the Saudi Labor Law as published by the Ministry of Human Resources and Social Development (qualification and training contracts with persons who are not the employer’s workers fall within the Law only within its special provisions), together with Articles 45 to 49 of the Labor Law, the chapter that holds those provisions, and Article 49 of the Labor Law (the provisions that apply to such a contract). Royal Decree M/44 of 1446H did not amend Article 49 of the Labor Law.
Before revenue per FTE goes into a report
The figure becomes useful when three things accompany it: the definition of the numerator (total revenue, or revenue after excluding some item), the denominator rule (whether outsourced labour is included, and whether the denominator is an average over the period or a count at one point in it), and the period itself. Without them the figure can be taken in more than one direction, and it can then be taken in whichever direction suits the person presenting it.
Its better use lies less in a performance report than in a question put to every change in it: if it rose, did it rise because revenue increased or because the denominator fell? Both produce the same movement on paper and carry two quite different pieces of news. An organisation that does not separate them can end up celebrating a contraction it took for growth.
This is an explanation of the concept and of the statutory provisions cited, not legal advice.
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