How to measure the productivity of my company?

Determining the productivity of a company is also a way to evaluate other important factors such as human labor, competitiveness, the level of economic development, among other aspects; and based on this, make decisions or propose new strategies that contribute to the strengthening of the company. Every businessman should know and be aware of both the practices that can modify work productivity and the mechanisms and tools that are used to improve it.

However, there are those who have not yet mastered these terms completely. That is why in this opportunity we will be explaining what it is and how to measure the productivity of a company, in addition to knowing some advantages of being aware of this indicator.

What is a company´s productivity?

As we mentioned at the beginning, productivity is an economic indicator that allows to evaluate the capacity of a company to make use of its available resources and produce goods and/or services that are profitable. With this calculation, the businessman will be able to make a global analysis of his company and visualize how it converts inputs into outputs in a given period of time. In simpler terms, this translates into the measurement of an organization´s performance, which is a key factor in business results.

Why is it so important to manage productivity at work?

Productivity indicators will help you to optimize your company´s resources, as well as to detect irregularities such as absenteeism, presenteeism or workers who do not follow orders or fulfill their work obligations, and take action accordingly.

Similarly, work productivity is also conditioned by some specific factors such as the flexibility of the company, the work environment, the team leader, among others. According to surveys related to happiness at work, 97% of the workers surveyed said that happiness in the workplace influences their productivity, so living in a good working environment can contribute to the performance of the company.

How is productivity calculated in the company?

One of the most important aspects when measuring the work productivity of a company is the fact of having data verified and previously analyzed, as this will help you take better decisions, avoiding errors that can negatively impact the performance of the company.  

Having an evaluation program can be a fast and effective way to analyze the performance of each employee and, based on the established objective criteria, make improvements. The reports produced by this type of software will allow to evaluate both the skills and the qualities of the worker and compare it with the requirement of the competence for the position.

The following criteria are necessary for productivity measurement:

Determine the number criteria. This suggests that the productivity measurement should be made on the basis of the same units, i.e., when evaluating a worker´s work period, the same working conditions should be taken into account, from the number of hours of the working day to the space in which it was performed.

Include qualitative data. While it is true that measuring work productivity requires quantitative data, it is also true that qualitative data must be considered; by this we refer to the results obtained with specific actions such as the implementation of motivational strategies, training courses for employees or the work environment situation. For this evaluation you can give scores to each task performed by each employee.

Establish a time period for the calculation. It is also important to define in how long the productivity measurement will be carried out, whether in days, months or years, taking into account that the most useful analyses are those that are executed in a short period of time.

Formula to calculate the productivity of a company

To measure work productivity, you will have to use the following formula:

Work productivity = (Products or Services Produced) / (Resources Used).

To give you a clearer picture of this, let´s look at an example.

Suppose you own a hat factory and your company has a daily production of 100,000 hats, whose value per unit is $30, your material costs (industrial rent and machinery) amount to $50,000 and you have 10 employees working 8 hours a day.

If we take this to the formula described above, we will have that:

Work productivity = (100,000 x 30) / (8 x 10 + 50,000) = 3,000,000 / 50,080 = $ 59.9 would be the total productivity of your company. 

Just as you obtained the total work productivity of your company, you can also calculate the productivity of a specific worker, all you have to do is apply the same formula, but based on his or her productivity. That is, if your employee earns $ 10 per hour and is able to make 8 hats per day, his work productivity would be:

Labour productivity of the employee = (8 x 30) / (8 x 10) = 240 / 80 = 3.

As you will see, it is not complicated at all, you just have to make sure you comply with each established criterion and check that each data has been verified and previously analyzed.

Benefits of measuring work productivity

Making use of tools to measure the productivity of a company can offer several advantages among them:

It allows the anticipation of results. For example, if you notice that your salespeople are not able to make sales effectively, it could be due to factors such as the lack of communication tools to convey the message or due to company functions such as payment methods. If this is the situation, make sure you have several options available, from card payments (debit or credit card) to online payment platforms, so that you can offer a range of possibilities to your customers.

Increase the company´s strengths. Keeping track of work productivity can improve business weaknesses and enhance them. 

Improve the work environment. The productivity indicator, in addition to providing benefits to the company, can also improve relations among workers, making them feel more comfortable and motivated to perform their duties.

It provides accurate results. Knowing data such as the number of units produced, number of workers who were present during the process and the number of working hours of each one in an accurate way, greatly simplifies the analysis process and thus the decision-making process.