Index Insider: Revenue Up, Headcount Flat: Is the Great Decoupling Finally Here?

Hello. This is Stanton Jones and Sunder Sarangan with what’s important in the IT and business services industry this week.

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What You Need to Know 

The fourth quarter of 2025 saw the most significant divergence between revenue and headcount growth in over three years. Is revenue growth finally starting to decouple from headcount growth? Or is this just a temporary divergence?

Data Watch

Background

As we flagged back in the second quarter of last year, revenue growth finally passed headcount growth after many quarters of it lagging. That trend has continued and, as you can see in this week’s Data Watch, the difference between the two is growing. 4Q25 saw the biggest divergence between revenue and headcount growth in three years.

The Details

• Revenue growth in the sector is up 12.1% over the last three years.
• Headcount growth, on the other hand, is essentially flat over the same period.

What It Means

Is this an indicator that the industry is (finally) starting to decouple revenue growth from headcount growth?

In our view it’s still too early to tell.

Here’s why:

• Utilization is up – and, in some cases, way up – for providers. This is an indication that they are getting more billable hours from existing resources, not necessarily that they are more productive.
• The demand environment remains extremely uncertain. This means providers continue to take a wait-and-see approach to hiring, which again, is one of the reasons the industry is seeing elevated utilization rates and moderated fresher hiring.
• As you can see in this week’s Data Watch, revenue momentum was strong in Q4. That’s great news for the industry. However, we’ve seen similar swings – in both directions – like this in a single quarter before.

Given our forecast of 2.1% growth for managed services in 2026, we believe we’ll continue to see providers take a wait-and-see approach to hiring. This means it may be another few quarters before we can start to see if the great decoupling is indeed underway.