The term profit per person refers to a metric that evaluates the efficient use of personnel. Profit per person is particularly useful for companies that have a relatively high proportion of labor expenses.
Profit per Person = Net Income / Full Time Equivalents
Operating performance measures allow the investor-analyst to understand how well a company is performing with respect to sales, margins, and profits. One of the ways to measure the effectiveness of a company's core business is by calculating their profit per person.
Also referred to as profit per FTE, profit per person is a useful benchmarking metric for companies that have relatively high labor costs. For example, the profitability of a company in the services industry is directly related to the efficient and effective use of personnel. This metric is more indicative of performance than measures such as sales per person, since it not only considers sales revenues generated by personnel, but also their ability to turn those sales into profits. When calculating this metric, all personnel should be considered, including full and part time employees, contractors and outside services.
Company ABC's chief operating officer wanted to better understand the effectiveness of the company's labor pool by computing their profit per person over time. The following rules were established for this metric: