Headcount
Efficiency
Industry:
Sector Agnostic
Short Definition
Headcount is the number of active employees on payroll at the snapshot date (e.g., month-end). You can report it as people count (each person = 1) or FTE (part-timers prorated). Pick one and stick to it.
Short Definition
Headcount is the number of active employees on payroll at the snapshot date (e.g., month-end). You can report it as people count (each person = 1) or FTE (part-timers prorated). Pick one and stick to it.
Short Definition
Headcount is the number of active employees on payroll at the snapshot date (e.g., month-end). You can report it as people count (each person = 1) or FTE (part-timers prorated). Pick one and stick to it.
Why it matters for Investors
Capacity: Shows delivery and sales capacity (e.g., engineers, quota-carrying reps).
Cost driver: People are the biggest expense lever.
Efficiency: Enables ratios like revenue/ARR per employee.
Why it matters for Investors
Capacity: Shows delivery and sales capacity (e.g., engineers, quota-carrying reps).
Cost driver: People are the biggest expense lever.
Efficiency: Enables ratios like revenue/ARR per employee.
Why it matters for Investors
Capacity: Shows delivery and sales capacity (e.g., engineers, quota-carrying reps).
Cost driver: People are the biggest expense lever.
Efficiency: Enables ratios like revenue/ARR per employee.
Formula
Practical considerations:
Scope: Employees on payroll. Contractors/agency temps are excluded unless your policy says otherwise.
Method: Choose People count or FTE and use it consistently.
Timing: Use a clear snapshot date (period end). Optionally also share average headcount for the period.
Function tags: Tag each employee to a function (R&D, Sales & Marketing, G&A, Services/Support).
Joins/exits: Count on the effective start/end date. Paid leave usually counted; unpaid leave off-payroll is usually excluded.
Formula
Practical considerations:
Scope: Employees on payroll. Contractors/agency temps are excluded unless your policy says otherwise.
Method: Choose People count or FTE and use it consistently.
Timing: Use a clear snapshot date (period end). Optionally also share average headcount for the period.
Function tags: Tag each employee to a function (R&D, Sales & Marketing, G&A, Services/Support).
Joins/exits: Count on the effective start/end date. Paid leave usually counted; unpaid leave off-payroll is usually excluded.
Formula
Practical considerations:
Scope: Employees on payroll. Contractors/agency temps are excluded unless your policy says otherwise.
Method: Choose People count or FTE and use it consistently.
Timing: Use a clear snapshot date (period end). Optionally also share average headcount for the period.
Function tags: Tag each employee to a function (R&D, Sales & Marketing, G&A, Services/Support).
Joins/exits: Count on the effective start/end date. Paid leave usually counted; unpaid leave off-payroll is usually excluded.
Worked Example
Starting headcount (Feb 1): 120
Period: February (snapshot Feb 29)
Event | Count | Notes |
|---|---|---|
Hires | 6 | Joined during February |
Departures | 3 | Left during February |
Internal transfers | 2 | Moved functions; no change to total |
Contractors | 4 | Excluded (not employees) |
On paid leave at month-end | 1 | Still on payroll → included |
Ending headcount (Feb 29): 123 Calculation: 120 + 6 − 3 = 123
Average headcount (simple): (120 + 123) / 2 = 121.5
Optional split at Feb 29 (ties to financials):
R&D: 50
Sales & Marketing: 42
G&A: 21
Services/Support (typically COGS): 10
Total: 123
Notes:
Snapshot: Count people on the date (e.g., Feb 29).
FTE or heads: If FTE, prorate part-timers; say which you used.
Who’s in: Employees only. Contractors/temps excluded (list separately if you show them).
Where they sit: Services/Support → COGS; R&D, Sales & Marketing, G&A → OpEx. If your company does it differently, state it and stick to it.
Effective dates: Add moves/hires/terms only when they start/end. Transfers change buckets, not the total.
Tie-out: Function totals must sum to overall headcount.
Heads ≠ dollars: This split explains people, not payroll cost.
Point-in-time: If you show average headcount instead, label it.
Worked Example
Starting headcount (Feb 1): 120
Period: February (snapshot Feb 29)
Event | Count | Notes |
|---|---|---|
Hires | 6 | Joined during February |
Departures | 3 | Left during February |
Internal transfers | 2 | Moved functions; no change to total |
Contractors | 4 | Excluded (not employees) |
On paid leave at month-end | 1 | Still on payroll → included |
Ending headcount (Feb 29): 123 Calculation: 120 + 6 − 3 = 123
Average headcount (simple): (120 + 123) / 2 = 121.5
Optional split at Feb 29 (ties to financials):
R&D: 50
Sales & Marketing: 42
G&A: 21
Services/Support (typically COGS): 10
Total: 123
Notes:
Snapshot: Count people on the date (e.g., Feb 29).
FTE or heads: If FTE, prorate part-timers; say which you used.
Who’s in: Employees only. Contractors/temps excluded (list separately if you show them).
Where they sit: Services/Support → COGS; R&D, Sales & Marketing, G&A → OpEx. If your company does it differently, state it and stick to it.
Effective dates: Add moves/hires/terms only when they start/end. Transfers change buckets, not the total.
Tie-out: Function totals must sum to overall headcount.
Heads ≠ dollars: This split explains people, not payroll cost.
Point-in-time: If you show average headcount instead, label it.
Worked Example
Starting headcount (Feb 1): 120
Period: February (snapshot Feb 29)
Event | Count | Notes |
|---|---|---|
Hires | 6 | Joined during February |
Departures | 3 | Left during February |
Internal transfers | 2 | Moved functions; no change to total |
Contractors | 4 | Excluded (not employees) |
On paid leave at month-end | 1 | Still on payroll → included |
Ending headcount (Feb 29): 123 Calculation: 120 + 6 − 3 = 123
Average headcount (simple): (120 + 123) / 2 = 121.5
Optional split at Feb 29 (ties to financials):
R&D: 50
Sales & Marketing: 42
G&A: 21
Services/Support (typically COGS): 10
Total: 123
Notes:
Snapshot: Count people on the date (e.g., Feb 29).
FTE or heads: If FTE, prorate part-timers; say which you used.
Who’s in: Employees only. Contractors/temps excluded (list separately if you show them).
Where they sit: Services/Support → COGS; R&D, Sales & Marketing, G&A → OpEx. If your company does it differently, state it and stick to it.
Effective dates: Add moves/hires/terms only when they start/end. Transfers change buckets, not the total.
Tie-out: Function totals must sum to overall headcount.
Heads ≠ dollars: This split explains people, not payroll cost.
Point-in-time: If you show average headcount instead, label it.
Best Practices
Define: Write down who counts (employees vs contractors; people vs FTE).
Tag: Keep function/department tags current (R&D, S&M, G&A, Services/Support).
Reconcile: Match HRIS to payroll each period; avoid double counting transfers.
Publish both: Share period-end and average headcount for context.
Be consistent: Same method every period so trends are comparable.
Best Practices
Define: Write down who counts (employees vs contractors; people vs FTE).
Tag: Keep function/department tags current (R&D, S&M, G&A, Services/Support).
Reconcile: Match HRIS to payroll each period; avoid double counting transfers.
Publish both: Share period-end and average headcount for context.
Be consistent: Same method every period so trends are comparable.
Best Practices
Define: Write down who counts (employees vs contractors; people vs FTE).
Tag: Keep function/department tags current (R&D, S&M, G&A, Services/Support).
Reconcile: Match HRIS to payroll each period; avoid double counting transfers.
Publish both: Share period-end and average headcount for context.
Be consistent: Same method every period so trends are comparable.
FAQs
Headcount vs FTE?
Headcount counts people (part-time = 1). FTE scales part-time by hours (e.g., two 0.5 FTE = 1 FTE).Do contractors count?
Not unless you say so. If you track them, report separately as “Contractor headcount.”When do hires/exits count?
On their start date and last employed day (effective dates), not when offers or notices happen.Do internal transfers change headcount?
Company total: no. Team totals: yes.Which should I use for ratios—average or snapshot?
Use average headcount for ratios (revenue per employee) to avoid end-of-month spikes.Does headcount equal payroll expense?
No. Headcount is a count; payroll expense is dollars and can sit in COGS (delivery/support) or OpEx (R&D/S&M/G&A) depending on role and policy.Why split by function?
To explain margins: COGS headcount affects gross margin; OpEx headcount affects operating margin.
FAQs
Headcount vs FTE?
Headcount counts people (part-time = 1). FTE scales part-time by hours (e.g., two 0.5 FTE = 1 FTE).Do contractors count?
Not unless you say so. If you track them, report separately as “Contractor headcount.”When do hires/exits count?
On their start date and last employed day (effective dates), not when offers or notices happen.Do internal transfers change headcount?
Company total: no. Team totals: yes.Which should I use for ratios—average or snapshot?
Use average headcount for ratios (revenue per employee) to avoid end-of-month spikes.Does headcount equal payroll expense?
No. Headcount is a count; payroll expense is dollars and can sit in COGS (delivery/support) or OpEx (R&D/S&M/G&A) depending on role and policy.Why split by function?
To explain margins: COGS headcount affects gross margin; OpEx headcount affects operating margin.
FAQs
Headcount vs FTE?
Headcount counts people (part-time = 1). FTE scales part-time by hours (e.g., two 0.5 FTE = 1 FTE).Do contractors count?
Not unless you say so. If you track them, report separately as “Contractor headcount.”When do hires/exits count?
On their start date and last employed day (effective dates), not when offers or notices happen.Do internal transfers change headcount?
Company total: no. Team totals: yes.Which should I use for ratios—average or snapshot?
Use average headcount for ratios (revenue per employee) to avoid end-of-month spikes.Does headcount equal payroll expense?
No. Headcount is a count; payroll expense is dollars and can sit in COGS (delivery/support) or OpEx (R&D/S&M/G&A) depending on role and policy.Why split by function?
To explain margins: COGS headcount affects gross margin; OpEx headcount affects operating margin.
Related Metrics
Components: Attrition Rate %
Related Metrics
Components: Attrition Rate %
Related Metrics
Components: Attrition Rate %
Components:
Index