ARR per employee is a measure of company maturity and efficiency. Looking at how how much ARR a company has per employee can help reveal how close they are to profitability and whether there are operational issues requiring lots of staff.
ARR per Employee = ARR ÷ Headcount
SaaS companies inevitably start with low ARR per employee, as even before they monetize they must have a staff to build the product. However, as a company matures, they eventually need enough ARR to cover all employee costs and the rest of overhead. The average salary at a SaaS company is likely around $100K, so $100K ARR per employee means revenue will roughly cover salaries over the course of the year. Salaries tend to be the main expense for SaaS companies, but ARR per employee has to be even higher for a company to be profitable to cover expenses like hosting, SaaS purchases, services, and rent.
