Here is a good place to start.
http://www.softwaremag.com/L.cfm?Doc=2005-09/2005-09software-500

You will be able to see corporate revenues and employees and go from there. Typically, you are doing well if you are above $200K per employee. Elite companies such as Microsoft are closer to $500K. You can also see margins of companies.

Revenue per salesperson and developer is highly relative, such that averages don't mean much if anything IMO. At Oracle for example, AEs carry $2M+ quotas, should that be comparable to a company that sells software at $10K a pop? No, so avoid apples and oranges comparisions. Look at competitors selling similar products in a similar sales process, and you can get a better idea how you are doing.

Check out the SoftareCEO site, Bruce here has been doing an ongoing survey to capture some of these metrics amongst site members, fill out the questionnaire and you can then see how you compare.
http://www.softwareceo.com/surveys.php

As for plowing back, MarKPaul is right on the money. Highly succesful salesforce.com was losing money up until not that long ago in order to "build" their business. I'm sure they could have pulled back to show a tidy profit much earlier, but that is a judgement call by management based on many, many factors.

---

Robert Dubicki

If you are cost managing before your IPO, then you certainly are not creating wealth.

Your retained earnings need to be able to justify a stock split for your stock option holders. One company I worked at set a $10/share target price and split the shares accordingly.

You don't need to show a profit until after your IPO. And, then, only if you have set some dividend expectation for your stockholders. This is a relatively new issue with the revised tax code and the stock option accounting rules changes.

If your sales reps aren't generating enough sales and you have to worry about ratios, get new sales reps, new offers, or a new product. Do something other than focus on ratios.

What are you selling?

David Locke

Of course you have to look at metrics!! You need yardsticks in football and business ...

---

Robert Dubicki

I agree that you have to measure. But, if you benchmark, you are letting someone else run your business. Are you running an average business? Are you running the same kind of business that built the benchmark? I hope not.

David Locke

I had conducted some research examining the revenue per employee ratio to see what relationship, if any, there was between this number and profitability. Was $200,000 revenue per employee number a good bench-mark demarcating if your company has a higher ratio than it is more likely to be profitable and if it is lower than it is more likely to unprofitable. I was testing the notion that the higher the revenue per employee the more likely the company was going to be profitable. It turns out neither are valid assumptions. What seemed to be a more valid assumption is that if your revenue per employee ratio was on an upward trend, year-after-year, than you were more likely to be a profitable company.

Even so, I do think that the $200,000 revenue per employee ratio is a good benchmark to shot for.

I also strongly believe both in metrics judging how different parts of a company are performing and benchmarks, which let me know how I compare to the industry and competitors. I am interested in these numbers because they provide data from which to derive insights--that is, in the right hands, they provide insights--into how I can improve both my revenue growth and my margin.

I also believe that it is a turning point in the life of a software company when when they move from an intutive based management style to a more objective based management style. Certainly, as a start-up, you need to be very loose in trying to understand your marketplace and how your product fits in. This is usually an iterative trial-and-error process. But when you want to scale, then you need to have metrics that allow you to learn how to develop predictable and repeatable processes like in lead generation and sales.

I also agree that judging when a company should turn profitable is a strategic decision for which there is not particular formula.

Brian

Brian Turchin CEO/Founder Cape Horn Strategies, Inc. Helping CEOs Increase The Value Of Their Businesses [url]www.capehornstrategies.com[/url]

Obviously, a lot also depends on what your company does and where it is located. If you are in Silicon Valley, and your employee mix consists primarily of high-end Java programmers, field consultants, and high-end sales reps on expense accounts, then you'll probably need $200K per employee just to break even. OTOH, if you are located in the mid-West and have a mix of admins, phone reps, and Crystal Reports programmers (please! no offense anyone) then you may need only $100K per employee to make a profit.

A lot depends on how highly leveraged you are. If your "company" consists solely of you working out of your house on an already paid-for PC, then you may be pretty happy at $80K per "employee." If you have a slick office, glossy magazine advertising, travel, entertainment, and lots of leased equipment, then you will need additional "per employee" revenue to cover that overhead that actually has little to do with headcount per se.

And of course, I haven't even touched on the fact that we are talking about US, Canadian, and European companies here. The numbers are obviously very different for India, Russia, and China.

Speaking of which, for a US etc. company, exactly what is the headcount? If you count a bunch of Indian developers in your headcount, then your revenue per employee could be correspondingly lower while still maintaining profitability. If you don't count them, then your revenue per employee will have to be much higher because they are now non-headcount overhead that must be covered out of other "per employee" revenue.
Bottom line: revenue per employee is a useful metric but there's no magic revenue per employee number. More is better.

Mark, I meant profitability at a given $/employee would be dependent on location. You can probably be profitable in India at $50K/employee (I'm not an expert) but not in Silicon Valley.

For that matter, shouldn't the $/employee target be dependent on geography? (You're the expert, not me.) If I am running a company in the Valley, I might well target $200K or $250K for obvious reasons. But if I were running an Indian outsourcing company, wouldn't I price myself out of this market -- where price is much of the competitive advantage -- if I billed my programmers at $100/hour ($200K/year)?