MAINSTREET CHAMPIONS PT. 7
Is AI Making Your Business More Valuable?
Thank you to Silas Adomako for contributing to this blog post as a co-author
In the early 1990s, my dad made a bold decision—he wanted to move our family to the U.S. Every choice he made after that, from sending us to English-speaking schools in Cameroon to how he structured our household, aligned with that vision. For ten years, he applied for the U.S. green card lottery and was rejected each time, yet he never wavered. Though he was a man of deep faith and conviction, he still carried the quiet voice in his mind all those years: am I making the right decision? Ultimately, his metric for success was simple—give 100% of his children access to the best education in the world—and in the end, things turned out exactly as he’d hoped.
Everyone contemplating a big decision carries that same quiet voice in their head: am I doing the right thing? For many small business owners, especially as they consider implementing AI across their workflows, that question becomes more pointed: how do I know whether I’m making the right financial decision? Unlike big Wall Street firms that can afford to experiment, small businesses don’t have the same margin for error. That’s why it’s critical for small business owners to measure the impact of AI clearly and quickly—to ensure the investment is driving real value.
The core promise of AI for businesses is increased productivity—in other words, doing more with less. But how do businesses measure whether it's working? In this blog post, I argue that Annual Revenue per Full-Time Employee (AR/FTE) is the most important metric to track to gauge the impact of AI on your company.
This ratio reflects the effect of AI on the most fundamental value equation in business: how much value each person creates. And while it’s often used in SaaS and tech companies under the term AR/FTE (Annual Recurring Revenue per FTE), its relevance is just as strong for small businesses that rely on limited human resources to grow and thrive—even if their revenue isn’t recurring.
Maximizing Economic Value
A business exist to maximize economic value for its shareholders. At its core, the economic value of a company can be defined simply as;
For small businesses, even a modest drop in revenue or a slight increase in costs can be the difference between staying afloat and shutting down. In fact, according to the U.S. Bureau of Labor Statistics, 20% of small businesses fail within their first year, often crushed by rising costs and stagnant revenue. Therefore, as long as a business makes more than it spends, the overall economic value of the company will be maximized, and the business increases its chances of survival.
Since Labor is often the largest expense for small businesses, accounting for up to 70% of total costs in small businesses, any solution that increases revenue per employee directly boosts economic value. That’s why Revenue per Full-Time Employee (FTE) is such a critical metric for assessing the impact of AI implementation. and properly assess value creation.
Earlier in the Mainstreet Champions series, I introduced the 4S-3R framework as a way for small businesses to prioritize AI opportunities. I recommend starting with quick wins - initiatives that offer immediate productivity gains with minimal effort. But those gains only matter if they ultimately translate into higher revenue or lower costs. That’s where the Annual Revenue per Full-Time Employee (FTE) ratio comes in - it captures productivity improvements in clear financial terms.
Traditional financial metrics like gross revenue, profit margins, and customer lifetime value (LTV) are important, but they often provide an incomplete picture of AI’s true impact on small business operations. While these metrics reflect overall growth or profitability, they don’t always highlight productivity improvements or hidden inefficiencies. For example, a business might grow revenue by 50% year over year but double its headcount in the process thus becoming less efficient. Similarly, profit margins might temporarily improve due to one-off cost cuts or favorable market conditions, masking deeper operational inefficiencies. Even metrics like LTV or average order value (AOV), which focus on customer behavior, can overlook whether growth requires disproportionate labor inputs.
So, for small businesses adopting AI, Annual Revenue/FTE cuts through the noise of vanity metrics and forces business owners to ask the tough question; is AI helping my team do more with less. A rising ratio signals that AI is amplifying productivity and increasing your businesses economic value. A flat or declining ratio, on the other hand Is a warning sign and an indication that business owners should reevaluate their AI implementation strategy.
Accounting Firm Case Study
Consider a boutique accounting firm that provides services in financial reporting, tax compliance, and bookkeeping. Today, the firm serves 120 clients and brings in $1.5 million annually with a team of 13 employees. While the owner is interested in expanding the client base, the firm’s manual onboarding and service delivery processes are a bottleneck. Rather than increasing headcount, the owner is exploring AI as a growth lever specifically to automate the client delivery workflow. He projects that with AI, he could onboard 30 additional clients and generate an extra $500K in revenue, bringing total sales to $2M annually - without hiring anyone new. The AI system would cost a $1,500 one-time implementation fee plus $95–$150 per month, a fraction of the alternative: hiring a new manager and associate for roughly $10,000 per month.
The table below compares the two growth scenarios. While both result in a 33% increase in annual revenue, AI implementation drives a 33% lift in Revenue per FTE, compared to just 15% with additional hiring. In other words, AI delivers greater productivity gains by enabling the firm to grow without adding headcount. Over time, this approach also sets a higher ceiling for both revenue and operational efficiency – driving stronger economic value for the firm
Limitations of AR/FTE
Some critics might argue that AR/FTE has its limitations since not every employee contributes directly to revenue, and the ratio doesn’t account for variable costs such as raw materials, which may not be directly affected by AI. These are valid points. It’s true that not all employees are revenue-generating, especially in the early stages of a business when owners may over-hire to build out capacity ahead of growth. However, for most small businesses, labor remains the dominant cost, often accounting for two-thirds or more of total expenses. That’s why, for the sake of simplicity, our focus in this piece is on the key drivers of economic value for a company that AI can directly influence namely, revenue and labor cost.
Furthermore, while over-hiring may be a temporary and strategic decision, sustained growth depends on improving output per employee. Our focus for this piece was to recommend a measure for assessing the impact of AI on sustained growth. This makes AR/FTE a useful directional metric for evaluating whether AI investments are truly translating into economic value creation.
AI holds great promise as a tool to help small businesses punch above their weight and unlock abundance. I strongly believe over the next few years, AI will drive unprecedented levels of productivity for Mainstreet businesses and create new opportunities that were unimaginable before.
I hope this Mainstreet Champions series has been a helpful guide for many small business owners thinking through how to implement AI within their organization and measure the impact of their investment.
THIS WEEK ON MAINSTREET
📰Mainstreet Minute:
No major developments to report this week. We'll be back with fresh insights in our next update.
📌Quick Win Tip:
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