Productivity: Measuring Productivity
The first step towards being more productive is measuring your productivity. There are many different metrics you might use, depending on your type of business or industry, but they all measure how much money you generate for every unit of effort you (or your team) exert. The more money you generate for each unit of effort, the more productive your business.
Here are some productivity metrics that I find useful:
- Revenue Per Employee
To calculate: Divide your total revenue by your number of employees.
Revenue per Employee is a very easy way to judge productivity per employee, by tying it directly to all-important revenue. Even though it seems overly simple, it is a useful high level tool for comparing people costs against revenue. For example, you can compare your Revenue per Employee to your average employee compensation (salary plus benefits) to see what kind of return you are getting from investing in your team. If you chart Revenue per Employee over time on a growing team, you can see if your employee productivity is increasing or decreasing as your company grows. Finally, it is easy to compare your business against public company equivalents as their Revenue per Employee metrics are public information.
- Mean Deal Closing Time
To calculate: Calculate the mean time it takes to convert a sale from first touch until close.
For sales-based businesses, revenue per employee may not be useful since different employees contribute in such different ways. In these cases it is better to track the average closing time per deal to understand how long the sales team (all together) are spending closing business. If your revenues are flat but your deal closing time is increasing, that means your teams are taking longer to close the same number of deals and revenue may decrease soon. If some of your teams have a mean deal closing time much longer than others, it is worth investigating why it takes them longer to close the same number of deals.
- Mean Task Completion Time
To calculate: Chose a common task that all of your employees perform and calculate the average time to completion.
Businesses that rely on significant amounts of contract or outsourced labor might not be able to effectively measure the metrics above. In these cases you are best to choose a common task and measure how long it takes everyone to complete, as a proxy for their overall productivity. For example, if you run an on-demand delivery marketplace the overall delivery time will vary by distance to destination, but the time to pick up the delivery from the supplier should be consistent. If you find changes over time or deviations from the mean, you will have identified productivity problems that might indicate larger productivity problems.
Regardless of what metrics you use to measure productivity, remember that productivity should be increasing over time as your employees gain experience. If productivity is flat or decreases, it represents a problem in your business that you are best to address immediately.
There is another way to measure productivity, called velocity, that is more powerful but more involved. We’ll cover that tomorrow!
Quote of the Day: “Lose no time. Be always employed in something useful. Cut off all unnecessary actions. “ – Benjamin Franklin