Productivity is a vital aspect of any successful business. It determines how well your organization produces goods or services, and is frequently tied to revenue and profits.
But how do you know if your workforce is as productive as possible? This is one area you don’t want to leave to chance. Measuring productivity — and knowing how to calculate it — is crucial for evaluating performance and identifying opportunities for improvement.
In this guide, we’ll walk you through a step-by-step process for calculating productivity, with valuable insights and actionable strategies along the way. Ready to get started? Let’s dive in.
What is productivity in business?
Productivity is a measure of business performance that tells you how efficient your organization is at achieving desired outcomes. It goes beyond simply measuring the number of hours worked or tasks completed to factor in the quality and value of work produced.
Why should you calculate productivity?
Whether you’re a business leader, manager or employee, learning how to calculate productivity can help you make more informed decisions. When you take steps to improve productivity, you’re doing more than just helping the company become more competitive. You’re also setting the stage for motivation and engagement.
IOne of the most overlooked aspects of productivity is the effect it has on employee satisfaction. When managers proactively talk to team members about productivity, people see the value of their contributions. This leads to even greater efficiency and a more positive work environment.
The productivity formula
The best way to measure productivity? Start with a basic formula to quantify the relationship between inputs and outputs:
Total Output / Total Input = Productivity
While the exact equation may vary depending on context, the general principle remains the same: Divide output (what your organization produced) by input (what your workforce did, or which resources were used, to achieve that output).
Components of the productivity formula
Here’s what each component means:
1. Output: This refers to the goods or services generated, such as the number of products produced or the amount of sales revenue generated.
2. Input: These are aspects that directly influence outputs, such as the amount of time spent on tasks or resources dedicated to a project.
3. Productivity: This tells you how efficiently and effectively your workforce is delivering results over a set period.
Common misconceptions about the productivity formula
To accurately calculate productivity levels, it’s important to avoid several common misconceptions. First, don’t make the mistake of focusing on the quantity of output without also factoring in quality. For example, working toward a productivity target based solely on the number of products produced may cause employees to take shortcuts. In this scenario, the rush may result in defective items. If the products are low quality and likely to be returned by customers, the quantity won’t matter — and your calculations won’t reflect true productivity.
Second, don’t overlook the importance of context. Productivity measurements can vary widely across industries and sectors, so it’s critical to consider industry benchmarks and contextual data. When in doubt, use productivity management software to reduce your risk of erroneous conclusions due to inaccurate or missing data.
Considerations for calculating productivity
There are different ways to calculate productivity, both for your organization at large and for each team and employee. When determining how best to calculate productivity for each scenario, factor in several important considerations:
- Industries and departments: In sectors with tangible outputs, such as manufacturing and retail, the number of units produced or sold can be an effective part of the productivity formula. But in the tech and service industries, you may need to focus on more nuanced metrics such as the number of milestones reached or critical tasks completed. Be prepared to tweak values by department, as well. While measuring productivity based on sales would make sense for your sales team, marketing will need a different metric such as the percentage of goals achieved.
- Benchmarks and goals: Are you in an established industry with clear benchmarks for productivity? If so, measure against those targets. These are especially important to factor in when calculating concrete outputs such as the number of customer service calls answered or support tickets resolved. Otherwise, set your own organizational benchmarks based on internal data.
- Quality and efficiency: To accurately calculate employee productivity, you need to factor in quality and efficiency. While the basic productivity formula will tell you how much is being produced, efficiency shows you the quality of that output. Distractions, work hours and burnout can all affect how efficiently your employees are performing. Productivity and efficiency go hand-in-hand — and it’s important to account for both.
The 5 best ways to calculate productivity
There are several different ways to calculate productivity depending on what metrics you have to work with.
1. The standard productivity formula
For some industries and departments, it may be easiest to use the productivity formula in its simplest form. Simply divide the number of goods or services produced by the total number of hours worked during a set period.
For instance, let’s say it took 1,500 hours of labor for your workforce to produce 15,000 units last quarter. In this example, the calculation would be 15,000/1,500 = 10 units per hour.
This method can tell you how much is being produced each quarter but doesn’t factor in the quality of those products. While it works well for straightforward productivity calculations, other instances may require an alternative approach with more nuanced factors like employee feedback or desired outcomes.
2. Objectives and goals
When it's not possible to measure exact quantities, such as the number of units produced, objectives are another option. You can instead calculate the percentage of target goals your employees have reached. This method works well for teams that have clearly defined objectives, along with target dates for achieving them. By using the goals-based method regularly — ideally monthly or quarterly — you’ll gain valuable insights on how best to support employees.
For example, let’s say you set a goal for your IT help desk to resolve 100 tickets each week and they exceed that to address 120. You can measure productivity based on the percentage of goals met using the following formula: Achievement/Goal x 100. So in this case, 120/100 = 120% of goal.
3. 360-degree feedback
With the 360-degree method, you collect feedback directly from employees. This process starts by asking team members and managers to provide candid insights on their peers and to rate how their fellow employees have contributed to the success of the company.
You could quantify feedback by using numerical ratings as scores for each person’s productivity. For example, if you asked 10 employees to rate their peers’ productivity on a score of 1-5 in a survey or meeting, each person would have a minimum score of 9 and a maximum score of 45. If an employee receives a cumulative score of 40 from their peers, it would indicate they are perceived as highly productive.
However, it’s important to note that this data may be skewed based on personal preferences or limited knowledge about how others work. Employees may give high marks to friends, or may not work with some people frequently enough to understand their work habits.
4. Revenue per employee
With this method, you simply divide the revenue generated over a specific period by the total number of employees working during that time. Although the calculation for this method is simple, the insights can be very informative — especially if you recalculate it at regular intervals. The higher the revenue per employee, the more productive your organization is.
For example, if you have 200 employees and your annual revenue is $1 million, your revenue per employee would be 1,000,000/200 = $5000 per employee. The downside to this method is that it doesn’t give you a sense of each person’s productivity, which means you can’t identify employees who are performing above or below expectations.
5. Productivity management software
Productivity management software is ideal for companies that need a high degree of accuracy. These tools automatically collect employee activity data at both the individual and team levels to show how, when and where people are most productive. Rather than manually calculating against benchmarks or goals, you can see exactly how productivity changes over time — and which factors are influencing it.
If you’re looking for a quick, easy way to start calculating productivity at your company, ActivTrak’s Productivity Management Software is a great place to start. Request a demo to learn how you can begin generating detailed productivity reports today.