Guesstimate of Revenue Per Employee in Small Company Space in Indian IT Industry

This is a white paper on guesstimation of per employee revenue in the SME space in the Indian IT industry. This was prepared during the process of evaluation of our billing rates to compare our rates with the market standards.

Authors:Thomas P. Thomas, Praveen Kumar¹

Introduction

Often, there are occasions when small companies are interested in setting benchmarks for their performance. However, access to industry data is not easy for many small companies like ours. Either database access is expensive or the information is simply not available in the public domain. Therefore, certain kinds of decisions becoming more about guesses and gut.

In IT services industry, the domain that I am currently working in, the question, 'what would be a reasonable revenue per employee' is a question that every manager in a small company will be interested in. One would want to benchmark their own company's performance with that of the industry. While data for all of IT industry might be available on these and other parameters, data that would allow us to set benchmarks for small companies may not be available. The trouble with industry wide data is that it hides the influence of scale and perhaps several other factors on these parameters. That could make benchmarking a perilous exercise. For example, a small company like ours aiming to hit revenue per employee similar to that of Infosys might be too optimistic unless one has some strong strategic advantage.

Therefore, in scenarios of this kind, one relies on information available in the public domain (internet, newspapers, conversation with friends) and makes some assumptions and comes up with 'reasonable conclusions'.

Calculating Revenue Per Employee

The following is a calculation done for revenue per employee based on a similar method. This is more a quick calculation rather than a methodologically rigorous study. This is only to point out that we can make some reasonable guesses with whatever is available out there.

First, let us put together the data that is relevant. We are using slightly dated data here.

Indian Software Revenue (Domestic and Export) in 2010 : Rs. 2.664 trillion (USD 60 billion)²

No of employees directly employed: 2.4 million in 2010 : 2.4 million³

USD exchange rate : Rs.44.40 to USD as on March 31, 2011⁴

Revenue per employee : Rs. 1.1 million per employee

Now the above figure is influenced by the productivity levels of companies like Infosys and TCS which are of a huge scale. If we look at the 8 companies that are fairly large in terms of employee size and revenue, their contribution to employment and revenue generation⁵ are as follows.

	Company	No of Employees in 2010	Revenues in USD	Revenues in INR	Revenue Per Employee
1	Tata Consultancy Services	198,614	6,892,215,917.59	373,250,000,000.00	1,879,273.36
2	Infosys	113,796	4,804,000,000.00	213,297,600,000.00	1,874,385.74
3	Wipro	102,746	6,112,927,927.93	271,414,000,000.00	2,641,601.62
4	Mphasis	38,000	1,081,081,081.08	48,000,000,000.00	1,263,157.89
5	Cognizant	75,000	4,592,389,000.00	203,902,071,600.00	2,718,694.29
6	Satyam (Tech Mahindra)	24,123	1,075,698,198.20	47,761,000,000.00	1,979,894.71
8	Patni computers	25,000	854,504,139.18	37,939,983,779.40	1,517,599.35
	Total	577,279.00	25,412,816,263.97	1,195,564,655,379.40	1,982,086.71

While the sector wide revenue per employee is at Rs.1.1 million per employee, in the case of these large companies the revenue per employee is about 1.7 times the sector wide figure at Rs.1.98 million per employee. Therefore, when think of benchmarks for small companies, it would make sense to remove the numbers of these companies from the calculations and recalculate.

Now what should be noted is that, even if we remove these 8 companies, small companies like ours with 50 odd employees are still far away from the size of companies that are still in the fray. For example, a company like IBS here in Technopark will possibly be about 30 or 40 times our size in terms of employee numbers. However, I am willing to overlook that because that is pretty much the area that ambitious companies would look to be in a 5 year horizon. One would also be competing for talent and clients with similar companies. Besides, the bulk of the remaining companies are likely to be within the less than 1,000 employees range.

After reducing the numbers of the big 8, the numbers now look as follows:

Indian Software Revenue (Domestic and Export) in 2010 : Rs.1.46 trillion

No of employees directly employed : 1,822,721

USD exchange rate : Rs.44.40 to USD as on March 31, 2011

Revenue per employee : Rs.0.80 million

So the number that small companies should be aiming to reach is in the range of Rs.800,000 per employee per year. This is only a back of the envelope calculation. There could be a lot more nuancing that is possible.

Annexure 1

The entire calculation in a tabular form is given below.

		Revenues in 2010	Employees 2010
	Sector	2,664,000,000,000	2,400,000
	Top 8 Companies	1,195,564,655,379	577,279
	After Deducting Top 8 Companies	1,468,435,344,621	1,822,721
	Revenue per employee (without Top 8 Companies)	805,628
	Revenue per employee for IT Services Industry	1,110,000
	Company	No of Employees in 2010	Revenues in USD	Revenues in INR	Revenue Per Employee
1	Tata Consultancy Services,	198,614	6,892,215,917.59	373,250,000,000.00	1,879,273.36
2	Infosys	113,796	4,804,000,000.00	213,297,600,000.00	1,874,385.74
3	Wipro	102,746	6,112,927,927.93	271,414,000,000.00	2,641,601.62
4	Mphasis	38,000	1,081,081,081.08	48,000,000,000.00	1,263,157.89
5	Cognizant	75,000	4,592,389,000.00	203,902,071,600.00	2,718,694.29
6	Satyam (Tech Mahindra)	24,123	1,075,698,198.20	47,761,000,000.00	1,979,894.71
8	Patni computers	25,000	854,504,139.18	37,939,983,779.40	1,517,599.35
	Total	577,279.00	25,412,816,263.97	1,195,564,655,379.40	1,982,086.71
	Dollar Rate: 1 USD = 44.4 INR
	As on 31st March, 2011