Cost per employee

Why This KPI Has Become Essential

Real estate is the second-largest expense for businesses, right after salaries. However, unlike payroll, which is tracked down to the last cent, per-employee real estate costs often remain a blind spot in financial management.

Two recent developments have made this KPI critical:

Hybrid work has skewed the calculations. When 40% of workstations remain empty on Tuesdays and Thursdays, the actual cost per present employee is much higher than the theoretical cost per registered employee. A 200-person company in Paris paying €600,000/year in rent shows a cost of €250/month per employee on paper, but if only 120 people are present on average, the actual cost per occupant rises to €417/month.

Finance departments demand transparency. In a context of cost optimization, the cost per employee now appears in reports to boards and investors. A ratio that is too high compared to the market signals real estate inefficiency.

‍

How to Calculate Your Cost Per Employee (Comprehensive Method)

Many companies underestimate their actual costs by overlooking certain expense items. Here are the elements to include for a reliable calculation:

Direct costs (easily identifiable):

Gross annual rent, rental charges passed on by the landlord, property tax (if you own the property) or office tax, and building insurance.

Indirect costs (often overlooked):

Cleaning and routine maintenance, reception and security, consumables (coffee, supplies, paper), depreciation of furniture and IT equipment, internal management costs (time spent by the office manager, CFO, and general services).

Hidden costs (rarely accounted for):

The opportunity cost of unused square footage (space you pay for but that generates no revenue).

The cost of occasional over-occupancy: when a lack of meeting rooms forces teams to book external spaces.

Flexibility penalties: early termination fees, restoration work at the end of the lease.

Concrete example:

A small business with 50 employees in Paris’s 9th arrondissement, 500 m², standard lease:

Rent: €250,000/year. Utilities + taxes: €45,000. Services (cleaning, reception, maintenance): €60,000. Equipment and supplies: €20,000. Estimated internal management costs: €15,000. Total: €390,000/year, or €650/month per employee.

‍

4 concrete ways to reduce your cost per employee

1. Measure before optimizing

Install occupancy sensors or analyze badge data to determine your actual occupancy rate. Without this data, any optimization is based on assumptions. An occupancy rate below 60% is a clear warning sign.

2. Adapt the space to actual usage

If your offices are occupied on average 55% of the time, you have two options: reduce your space (relocate or return part of it) or monetize the excess square footage through a flexible workspace operator. The second option avoids relocation costs and generates revenue.

3. Switch to an all-inclusive pricing model

Traditional leases involve a multitude of unpredictable costs. Service-based models combine rent, utilities, and services into a single flat rate, which simplifies management and eliminates unexpected budget surprises.

4. Renegotiate at the right time

The Paris market is seeing historically high vacancy rates in certain neighborhoods. Now is the time to renegotiate your rent or lease terms. Identify your three-year exit date and begin discussions 9 to 12 months in advance.

‍

Common calculation errors

Comparing the incomparable: the all-inclusive cost per employee in an office space is not comparable to the cost of a traditional lease excluding utilities. Make sure you’re comparing like-for-like scenarios.

Ignoring flexibility: If 30% of your teams are working remotely, dividing by the total headcount rather than by average occupancy completely skews the ratio.

Forgetting transition costs: moving to downsize comes at a cost (renovations, movers, lost productivity, lease termination). Factor these costs into your 3-year simulation to see if the move is truly cost-effective.

‍

When Cost Per Employee Becomes a Strategic Lever

Beyond basic financial management, this KPI enables you to make fundamental decisions: Should you open a second location on the outskirts to reduce the average cost? Should we switch from a traditional lease to an operated model? Should we monetize an entire floor that has become vacant following a reorganization?

Operators like Sora enable precisely this type of decision-making: by transforming unused spaces into revenue-generating operated offices, the net cost per employee automatically decreases, without moving or terminating a lease.