How is productivity calculated? (With formula and examples)
By Indeed Editorial Team
Updated 2 September 2022 | Published 3 January 2022
Updated 2 September 2022
Published 3 January 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Businesses are always looking for ways to increase productivity. Employee productivity has a huge impact on how well a business performs, making it important to track productivity per individual to identify problems and maximise output. As a team leader or manager, understanding how to calculate productivity is crucial if you want to measure the efficiency of the production processes of your team. In this article, we explain what productivity is and why it's important in the workplace, outline the labour productivity formula, share different ways to calculate productivity and discuss factors that impact productivity levels.
What is productivity and how is productivity calculated?
Before learning the answer to 'How is productivity calculated?', it's crucial to understand that productivity refers to the volume of work an employee completes in a certain amount of time, otherwise known as their output. To calculate productivity, it's essential to know the inputs used and outputs produced. Some common inputs include natural resources, labour hours and capital, while outputs generally entail the number of sales of goods or services produced.
Using this information, it's possible to understand the productivity levels of each employee. In determining workplace productivity, management teams can determine how long it takes to perform certain jobs and take actions to decrease these times. This leads to better organisational effectiveness.
Why calculate productivity in the workplace?
Calculating employee productivity is a financially impactful tool that has several advantages, which include:
helping you identify approaching deadlines and allowing you to allocate work to individuals who have time available
showing parent or partner companies that your team is performing well and giving them an in-depth understanding of the production process
determining where and how your team can eliminate wastage and generate more revenue
helping clients understand how much a project costs a company and the price of engagement
boosting confidence from clients and showing that the company is operating with transparency and can provide evidence
showing an employee their personal strengths, which can help them improve
helping executives make informed decisions about whether to refuse engagements or projects or demand higher fees based on statistical information
identifying the need for operational changes like adding equipment or employees
helping relevant teams and professionals gauge the overall efficiency and profitability of the company
ensuring your team remains agile when facing productivity changes
helping the company remain competitive by keeping unit costs down and optimising profits
What is the formula for calculating productivity and how does it work?
You can calculate employee labour productivity by dividing the total amount of output by the total input. The formula is:
Productivity = total output / total input
The output can consist of several activities completed or money generated in a given time frame. The input is usually the number of hours over which these activities take place. It can be a good idea to calculate productivity in a spreadsheet, especially when calculating the value of productivity regularly. This means you can always refer back to the information and compare productivity over time. To calculate the productivity in an Excel spreadsheet, follow these steps:
Locate a blank cell and enter the output value, for example, B1.
Put the input value in another blank cell, for example, B2.
If you put the output value in B1 and the input value in B2 in a different cell, type the following formula: =B1/B2.
Press enter once you type in the formula. The cell can then display the productivity value and show a different outcome if you change either value in B1 or B2.
Example: Josh is a postal inspector in a large depot and he inspects 250 parcels in five hours. This means his output is 250 inspected parcels and his input is the five hours he completes it in. Given this information, his manager can use the productivity formula to calculate Josh's productivity level, which results in 250 / 5 = 50. This means that Josh's productivity is 50 inspected parcels per hour.
Considerations when calculating productivity
Several factors can influence workplace productivity, including quality of assets, motivation of the workforce, production methods and the reliability of suppliers. Although you can't control all of these factors, there are some things you can do to make sure your team's productivity levels are as accurate as possible. Here are some considerations to make when calculating productivity:
The output value is different for varying industries. This is because some industries use revenue production as the main output value whilst others use the number of items produced. For some sectors, such as the service industry, outputs are interchangeable. This means that companies are constantly reconfiguring average productivity levels and determining new ways of measuring them each time.
If you work in an industry that generates more than one output, consider measuring performance based on tasks completed rather than the number of items or money produced. Industry standards may also change, so be sure to keep up to date on them to make sure your team's productivity is accurate and in line with official data. You may also wish to speak with other professionals in your industry to understand their methods of calculating productivity.
The measure of efficiency and standards
There is a difference between the output of an employee and how well they perform their job. For example, an employee may exceed industry expectations with their productivity, but this could be because they spend less time on ensuring the quality of the product or service they produce. Make sure you accompany the productivity value with a calculation of efficiency and standards.
Corporate targets and benchmarks
Some industries have target productivity levels based on established benchmarks or internal targets. Customer service or sales representatives usually predetermine how long a 'productive' call takes to complete. For instance, a telesales company may have an established benchmark stating that 150 calls over an eight-hour shift is productive. It's not uncommon for individual companies to establish their own benchmarks.
If the company you work for does this, make sure you're aware of the predefined targets before calculating employee productivity for your team. That way, you have something to compare the calculations to. You can then make suggestions to your team to help them improve if their productivity is lower than the predefined targets.
Methods of calculating productivity
There are different ways that you can calculate productivity besides the outlined formula. Some alternative methods include:
This method involves soliciting feedback from an employee's colleagues, including their subordinates, peers and superiors. Colleagues usually rate the employee on a number scale based on how much they contribute to the company and to what standard they fulfil their duties. You can ask your team to fill out a survey if they wish to anonymise the information.
For 360-degree feedback to be effective, everyone involved requires a solid understanding of what it means for the person in question to be effective in their role. It's also crucial to ensure that the feedback is instructive and objective and not related to any personal feuds or workplace conflicts. Receiving feedback from several colleagues ensures you eliminate a singular person's bias.
Total sales method
Some company leaders prefer to measure overall labour productivity rather than that of one employee. Finding this value involves dividing the total sales amount by the total number of hours worked. Here is an example of this method:
A retail company has net sales of £200,000 by the end of the fiscal quarter and employees worked a total of 1,000 hours during this time. The equation used to determine the company's productivity was 200,000 / 1,000 = 200. This means that the retail company's employees produced £200 in sales for every hour of labour in that fiscal quarter.
Online performance tracking
Another way to calculate workplace productivity is through online time tracking and project management software. This allows you to monitor productivity automatically without any manual input. Online performance tracking involves the use of electronic timesheets to create employee performance reports. This is a good system to use if your team includes remote employees, as it allows them to input their data themselves at the end of the working day. You can then view this information and compare it to other employees in the same position or to industry benchmarks.
How you can improve productivity in the workplace
If you'd like to improve upon your team's current performance levels, there are several ways you can increase their productivity. These include:
investing in computerised capital equipment
streamlining production processes
performing competitor audits and using the information to implement similar processes
investing in employee training programmes
motivating employees with incentives and feedback
Please note that none of the companies mentioned in this article are affiliated with Indeed.
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