What is the Productivity Measurement Formula? (Benefits and Challenges of Improving Productivity)

Determining the productivity of a workforce is often left to math. While a mathematical formula can give you a specific number that rates productivity, it is important to understand what that number means. Once the proper equation has been solved and a firm number has been determined, knowing what to do with that number is equally, if not more, important. After all, what good is a number if you don’t know what to do with it?

What is the productivity measurement formula? In order to measure productivity, a simple formula is used. This formula is total output/ total input. As an example, say that a company gained 1000 clients and put in a total of 250 hours of work earning those clients. That would put the productivity rate at 4. That’s 4 new clients in an hour of work. Comprehending the meaning of this number makes the significance of the formula far greater.

Putting the productivity measurement formula to work is just the beginning. Placing more than simply a numerical value to productivity is the purpose of the formula. It is used to define productivity in a way that can be understood and improved upon. The formula removes the subjective aspect of productivity and gives employees something to strive for. Also encouraging productivity improvements are the known benefits, despite the challenges that reaching for an increase might bring.

How to Use the Productivity Measurement Formula

It seems to be a goal for all in the world of money making to figure out how to do something just as well as before but in less time. This is the ultimate productivity challenge. Knowing what the productivity measurement formula calculates is a good way to determine what is being done well and what might need improvement.

The first part of the formula is total output. Although this varies from industry to industry, it is the same idea. An output is what the business is gaining. For example, in the manufacturing industry, it may be the creation of goods. In sales, the output can be the number of calls made or the number of new clients earned. It can even be dollars earned.

On the opposite side of the formula is input. This is what the company has put into the scenario. For instance, the input can be man-hours or investment dollars. It could also be the number of employees working toward the goal. Consider input as a quantifiable item that was put into the creation of the product or service.

The key to using the productivity measurement formula is using it on multiple aspects of the business. The example above would be amazing productivity if the company is smaller. However, if that company were global and employing a million employees, those results would be far less impressive. Consider 1000 clients with a million employees: 1000/1,000,000= .001 clients gained per employee.

Setting goals and attempting to reach them based on current productivity rates helps companies to do better in a variety of ways Keeping with the same example, say it is the company’s goal to earn 20 clients per hour. By working backward it can be determined that the company would need to gain 5000 clients. Making that goal known can give employees something to reach for.

While math is a simple part of the productivity measurement formula, the harder aspect is knowing how to use it. It requires thought and planning to put the formula to work and see a positive change. That change can bring benefits to the company and its employees in a few ways.

Benefits of Improving Productivity

The benefits of increased productivity are many. With less time needed to get tasks completed, profits can increase and the benefits for all can improve. Both employee and employer benefits should encourage individuals to aim for better productivity. In fact, the benefits that stem from improved productivity are often so much so that additional incentive is not always necessary.  (We have written a related article – Does It Matter Where I Sit In The Office? (Increase Your Productivity by 15%)Opens in a new tab.)

One big benefit of improving productivity is the ability to create more for less overhead. This means more product in less time, and paying less in wages per product. Learn from a real-world company, the Rustic Flag Company, that finds itself nearly a year behind on orders. Improving productivity will prevent disasters such as these.

Another potential benefit is providing a better wage to employees. Expecting more from employees should result in higher pay, especially when those expectations are met or exceeded. In fact, studies show that pay and productivity are related. When pay is higher, productivity levels are higher. This is especially true when the pay increase is an unexpected “gift.”

An additional advantage of increasing productivity is the ability to alter pricing for products. Since it costs less to produce a product or service, there is typically more leeway with pricing. A product that was previously purchased for $20 can now drop to $15 and the profit margin can remain the same. This would cause customers to purchase more and increase revenue in the long run.  (Check out an interview we recorded –  What is Workplace Psychology Design? Increase Productivity by 21%Opens in a new tab.)

Ultimately, a higher productivity rate leads to a better standard of living. Considering that an increase in productivity would lead to improving three aspects included in the standard of living, the impact on the quality of life is potentially huge. Those three aspects are better pay, lower cost, and additional free time. By reaching for productivity goals, companies can reach them and make a positive change in the lives of employees. In turn, the economy can also be improved.

The benefits of productivity improvement can affect the company, its workers, and the world. Taking the productivity measurement formula and applying it to bettering the workplace can be the start of upgrading all industries.

Productivity Challenges

Despite a company’s desire to boost productivity, the process can be harder than simply knowing that it needs improved. The formula might tell us that it’s necessary to do more in less time, but how does a business go about doing just that? For many companies, the answer is trial and error.

A company can plan and theorize to their heart’s content, but nothing is known for sure until changes are physically made. This can be a challenge for many industries, especially in manufacturing. Imagine a new computer system being implemented to enhance productivity only to discover that quality control was better prior to its use. It is challenges such as these that make a revamp of productivity complicated.

Although challenges are imminent, it is essential for companies and individuals to aim high when it comes to productivity. Using the productivity measurement formula, management has the tool to interpret work yield in a logical manner. Without the numerical value established from the formula, it can be difficult to determine if the productivity can be improved upon or not. Its use and implementation of changes thereafter are key to seeing positive developments over time.

Related Questions

Is there software available to track productivity easily? There are a number of software packages readily available to keep track of employee or company productivity. Many of them are developed for specific industries and jobs. This makes it important to understand the specifics of the package you are looking at purchasing.

How can employers encourage better productivity from employees? There are a number of tips to help increase productivity. If employers were to play music known to escalate productivity, allow periodic breaks, and eliminate outside distractions, companies would be well on their way to better producing employees.

Are there disadvantages to improving productivity? While many fear that an improvement in productivity could mean fewer jobs, the opposite is true. With the increase in profit that comes with better productivity, companies can afford to hire more employees. With more employees producing and even more work getting done, the business will soar.

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