The revenue factor is a labor-related key indicator that is a better indicator of a firm's efficiency than the net multiplier or utilization rate alone. The revenue factor is calculated by dividing net revenue by total labor dollars or by multiplying the net multiplier by the utilization rate. The result is the same. The profit plan revenue factor may be used to check the balance between revenue (marketing plan) and labor (personnel plan). In other words, is there enough revenue to support the existing staff?
The following table shows the relationship between the two methods of calculation of the revenue factor. There is an inverse relationship between Net Multiplier and Utilization Rate.
Net Multiplier times Utilization Rate
| Net Multiplier | 3.00 | 2.80 | 3.00 | 3.14 |
| Utilization Rate | 0.65 | 0.70 | 0.70 | 0.70 |
| Revenue Factor | 1.95 | 1.95 | 2.10 | 2.20 |
Net Revenue divided by Total Labor
| Net Revenue | 97,500 | 100,000 | 110,000 |
| Total Labor | 50,000 | 45,455 | 50,000 |
| Revenue Factor | 1.95 | 2.20 | 2.20 |
Multiplying the firm's total labor expense by the profit plan revenue factor shows what the net revenue should be:
| Total labor (actual | $ 500,000 |
| Revenue factor (profit plan) | 2.20 |
| Net revenue (target) | $ 1,100,000 |
| Net revenue (actual) | 1,000,000 |
| Net revenue variance over/(short) | $ (100,000) |
The above calculation indicates that the marketing plan may need to be evaluated. Is there enough revenue backlog to support the current staff level or production capacity?
Dividing net revenue by the revenue factor shows how much total labor (not just direct labor) the firm should have to produce that much net revenue:
| Net revenue (firm-wide) | $ 1,000,000 |
| Divided by revenue factor (profit plan) | 2.20 |
| Total labor (budget) | $ 454,545 |
| Total labor (actual) | $ 500,000 |
| Excessive labor | $ 45,455 |
The above calculation indicates that the human resources or personnel plan may need to be evaluated. Is there too much 'capacity' for available revenue? or has "work expanded to fill the available time...?" or is there too much non-technical overhead staff in proportion to available technical staff?