How is Productivity Measured?

What gets measured gets improved. – Peter Drucker If you are serious about growing your business, then you can’t throw your precious resources around without knowing their impact on your goals. When you spend money on advertising, you want to know what works and what doesn’t. If you use your resources on getting the message out there, then ultimately you want to see that it has brought you more sales. You want to know your return on investment (ROI). For many successful businesses, their most significant expense will be their employees. Salaries, tax, pension contributions and on-costs (even the coffee they drink) all adds up to considerable use of resources.

How do you know you are getting a return on this investment?

Firstly, you need to know what is going in at the start. The full cost of an employee is not always immediately apparent, but it is essential that you attain this information. You could ask your accountant for help to discover this detail, or search for a ‘true employee cost calculator’, and estimate it for yourself. The reason you need the employee cost is that it is part of the first part of the answer to how is productivity measured. Along with any other expenses that you make for your business, that leads to the total amount that you put in and is called the input. The second part of how is productivity measured is what comes out the other side.

How much do you produce from your business?

What is the total worth of the products or services that your business produces? The amount produced is the output and forms the second part of the answer to how is productivity measured. So, now you have your input and your output, you divide your output by the input. For example, if you have five employees that cost you £150,000, and they generate £400,000 of services, per year, then you have productivity of 2.66. If you increase your output to £800,000, with the same input, then your productivity will rise to 5.33. So, the higher the number, the greater your productivity.

What about your employees?

If you want to know how productive a specific employee is, then you can restrict this equation to their input and output, to calculate their productivity. However, remember that some employees may impact on the productivity of other employees, and their direct output may not give an accurate idea of their productivity. You now have two clear options to grow your business. Either you increase your input, i.e. put more money in at the start, or you increase your productivity, i.e. you increase output without increasing input. If you want to increase your productivity, then you can find many ideas in our other articles here. SwiftCase helps thriving businesses, swamped by growing demand, automate and organise, to focus on what matters — loved by 1000s of users across Insurance, Finance, Legal, Service & Contractor sectors.