FTE Benchmarking is the process of comparing and evaluating the size of a workforce. The insights from this process are usually referenced or sometimes even the main driver for critical decision making in an organization. So, it’s super important to know what it is, and how to do perform the exercise to the best of your ability with the information out there.
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In this handbook, we will cover:
1. What is FTE?
2. What is FTE Benchmarking?
3. Common Issues with FTE Benchmarking
4. The FTE Benchmarking Checklist
FTE stands for Full-Time Equivalent and is typically used to quantify the size of any workforce. The logic behind FTE is that people perform work, and that work is best measured by time. Most professionals these days will argue that FTE is the most accurate measure of workforce size, as it is driven by the actual output of people, not just the sheer number of employees.
To calculate FTE, you simply add up the days that each employee spends working in an average week and divide it by the full-time number of days (typically five). Then add up all these figures for each employee to arrive at your total FTE. For example, Bonanza AI is a company that operates with 100 employees that all work part-time at two days per week. While the company has 100 employees it only has 40 FTE, which is calculated as 2 of 5 days for each employee (40% of the work week) multiplied by 100 employees.
As you can see in the example above, FTE takes into consideration the actual time that each employee or contractor is working for a company. It is a popular metric amongst the business community because it provides a standardized way to measure human resources within and between organizations. If you are working within an organization and looking to calculate workforce size than this is the metric that you should use. However, for outside research purposes it can be difficult to source the type of employees to calculate FTE, so the number of employees is commonly used instead.
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FTE benchmarking is the practice of comparing the workforce size of one company to a group of similar companies. This comparison can involve assessing the overall size of the organization or the FTE within specific functions or locations. The objective of FTE benchmarking is to ascertain whether a company has an excessive or insufficient number of employees compared to its industry peers, and to pinpoint areas where workforce efficiency can be improved.
Let's explore two examples to better understand how FTE benchmarking is used:
Example 1: Company A operates in the technology sector and has 500 employees across various departments. They compare their headcount efficiency to other similar technology companies by using the overall revenue per employee benchmark. When they find that they have a lower revenue per employee than the industry average, it prompts them to investigate inefficient areas within the business using a headcount benchmarking platform like CompanySights. From here, they identify that they have a high number of employees in the Finance and Marketing functions relative to peers. When they dig into both functions, they realize that many tasks that could be automated are currently being performed manually.
Example 2: Retailer B has 30 store locations across the country. The company is under pressure to reduce costs so they assess the staffing levels at each store through internal FTE benchmarking. By comparing the number of employees at each retail location within the company, they can measure headcount efficiency and identify stores may be overstaffed or understaffed. This exercise proves beneficial with the reduction of 50 employees from the company and comfort that each store has an appropriate number of employees.
In summary, FTE benchmarking is a very powerful tool that enables companies to assess their workforce. With this information companies can make data-driven decisions to optimize their workforce and ultimately improve overall operational efficiency.
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When it comes to FTE benchmarking the most common objection is that “we are different”. Many stakeholders dismiss benchmarks as not being relevant to their organization or function, especially when the benchmarks suggest that they could improve. Therefore, it is important to ensure that benchmark samples are as similar to the company in question as possible. Factors to focus on include the industry, region or country, revenue, number of employees, and business model.
It is also wise to include the key stakeholders early in the benchmarking process to get their buy in to the process. This visibility and inclusion will help gain their trust and support when it really matters. The goal here is to eliminate the “we are different” objection altogether, so it doesn’t come up in the final presentation or even worse, the board room.
Getting access to comprehensive and relevant FTE data from comparable companies is challenging due to the sensitive nature of the data. This means that you can spend a lot of time trying to source a few relevant data points for benchmarking purposes.
Consider leveraging industry associations, professional networks, or third-party providers that specialize in benchmarking data to access broader datasets. This includes our database, which is specifically designed for FTE benchmarking purposes (learn more about our data here).
Ensuring the accuracy, completeness, and reliability of the data can be a challenge due to the different sources out there. Further to this it is important to be consistent on the type of data that you are using, such as whether it is FTE or the number of employees. Even if they sound similar, always check that the underlying inputs are of the same type.
After you source the data, you should try to validate it by conducting thorough checks, including cross-referencing multiple sources, conducting independent audits, or engaging in data verification processes. Through leveraging third-party providers, you can usually gain comfort around data quality faster, including how they source the data and what checks they perform.
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To help you with your FTE benchmarking exercise, we have summarized our process in to a five-step checklist outlined below:
Clearly identify the objectives and scope of your FTE benchmarking exercise. What is the purpose for performing the exercise? What specific areas or functions do you want to benchmark?
We typically recommend starting broad and then narrow in as you learn more. For example, your objective may be to identify cost out opportunities, so your scope may be to analyze the whole organization and then drill down to specific functions.
Research for companies that are similar to yours in terms of industry, size, business model, and other relevant factors. Consider both direct competitors and companies from related industries that may be viewed as highly comparable.
The key challenge here is finding enough relevant companies with available data. At a minimum you should be include 10 comparable companies in your benchmarking exercise. Typically speaking, the more samples the better. But it is an area that requires professional judgement, as too many samples may raise the question of relevance.
Determine appropriate metrics to measure based on the part of the workforce that you are benchmarking. Common FTE benchmarking metrics include revenue per FTE, revenue per functional FTE, functional FTE as a % of total FTE, and functional FTE per customer.
The challenge is to think through the key driver for each part of the workforce that you are benchmarking. For example, Sales FTE is usually driven by revenue, so revenue per Sales FTE maybe an appropriate FTE benchmark. Comparably, HR FTE is usually driven by the number of people in an organization, so a more relevant metric may be the number of HR FTE as a % of total FTE.
Collect FTE data from the selected benchmarking companies. Then validate the data for accuracy, completeness, and consistency purposes. Also account for any differences in data definitions, timeframes, or reporting methods to ensure comparability.
This step is usually the most challenging due to the limited availability of company specific data. To overcome this, you can reach out to industry associations, manually search public data sources, or use a headcount benchmarking platform.
With over 250,000 data points CompanySights is one of the largest headcount benchmarking platforms in the world, designed to provide instant insights for any organization. Search our benchmarks here.
The last step is to compare your company's FTE metrics against the benchmarking data to identify gaps, areas of strength, and improvement opportunities. For example, these results could suggest that the Marketing function has too many employees, or it could be to recommend more people in the R&D function, as they appear understaffed and risk falling behind competitors.
When interpreting these results, it is also important to consider contextual factors, such as market conditions, organizational goals, and strategic priorities. Then as a final point, make sure to connect these new insights back to your initial objectives to round out the benchmarking exercise.
FTE benchmarking is a process that can generate material insights for any workforce. With your newfound knowledge of this process, you are well positioned to provide trusted insights that could significantly influence your organization. Remember that FTE benchmarking is an iterative process, and continuous monitoring and reassessment may be required to track progress and adapt to changing circumstances.
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