How to Calculate Productivity for Better Results

How to calculate productivity—you may wonder, what kind of questions is even that? Is it possible to calculate productivity?

While productivity is connotated wit an abstract concept, seemingly unmeasurable, it’s an actually a very specific KPI that can indicate the condition of your business (provided you know what to take into consideration).

If you’re running a business and are tired of all the productivity tips and tools, but rather looking for practical ways on how to calculate productivity, you’re in the right place.

How to calculate labor productivity? What affects your company’s productivity? And what can you do to improve it? Here’s your short guide.

What Is Employee Productivity?

With the rise of remote work, the emergence of numerous tools, apps, and techniques, the business world has become oversaturated with the productivity obsession. And the clear understanding of employee productivity has somehow faded.

In general, you can define productivity as efficiency and effectiveness with which employees complete tasks and achieve goals within a specific time frame.

It’s a measure of how much work an employee produces and how well they use their resources (such as time, skills, and tools) to contribute to the organization’s objectives.

In other words, it measures how much output workers generate in a given amount of time.

Try best time management app!

Free time tracking & easy attendance, project profitability analysis and precise billing.

Try for free!

Why Measure Productivity in the Workplace?

To know where you’re going and what’s your ultimate goal, you need to know the direction. Just like in life, you need a compass or certain guidelines.

Here’s how monitoring the efficiency of your company or business is important:

Measuring productivity helps organizations adjust their plans to achieve better results.
Calculating productivity is essential to understand when and how to make changes.
It helps identify areas for improvement and optimize business processes.
Measuring productivity is critical for achieving business goals.

The U.S. Bureau of Labor Statistics states that “productivity growth is our opportunity to increase output without increasing inputs and incurring these costs.” In other words, when you have a high productivity number and use resources wisely, you make your business more profitable.

How Do You Measure Productivity?

Measuring employee productivity is essential for understanding how effectively your workforce is contributing to your organization’s overall productivity.

There are several ways to measure it, each offering different levels of insight, depending on what you want to focus on.

Elements of Productivity Formula

Before you decide to measure organization’s productivity, it’s important to know the basics, so you can accurately assess your efficiency.

1. Input and Output

Input refers to the resources, time, effort, and materials that are used to produce a certain result or output. It includes everything that goes into a process to achieve a goal, e.g, time, resources, effort (including cognitive and physical labor), and cost (financial investment required for resources, wages, and other operational expenses).

Output is the result or outcome produced from the input. It can be a tangible product, a service, a completed task, revenue, or results (such as quality of the product, customer satisfaction, or overall performance metrics).

And, in general, you can measure productivity as a ratio of output to input. It’s a basic labor productivity formula that will work best for simple calculations.

2. Different Context

In the business world, you’ll find different metrics for productivity. However, many jobs don’t fit the basic formula. Hence, usually, you can distinguish between individual productivity (how well a person does their job), and business productivity (the overall efficiency and effectiveness of a company in converting inputs into outputs).

3. Quality vs. Quantity

High output doesn’t always equate to high productivity if the quality is compromised. Balancing quality with quantity is key.

Similarly, not all inputs are easily quantifiable. Some are more complex, such as creativity or innovation, which can make measuring productivity challenging.

Partial Factor Productivity

Partial factor productivity is about measuring the relationship between one input and the output it generates. It’s straightforward and easy to calculate, making it popular for quick assessments.

You can use it in three variations:

Labor Productivity: This measures how much output is produced per hour of labor.
Formula: Total Output / Labor Hours
Capital Productivity: This looks at how much output you get per unit of capital used.
Formula: Total Output / Capital Employed
Material Productivity: This measures the output relative to the amount of material used.
Formula: Total Output / Material Input

Multifactor Productivity (MFP)

The multifactor productivity formula offers a more comprehensive view by considering multiple inputs at once, such as labor, capital, and materials. This method gives you a broader understanding of how efficiently resources are being used to produce the same output.

Multifactor productivity formula: Total Output / Combined Inputs (e.g., Labor + Capital + Materials)

Total Factor Productivity (TFP)

Total Factor Productivity (TFP) is similar to MFP but often includes additional elements like technological advancements and efficiency improvements, giving you a more complete picture of productivity.

Total Factor Productivity (TFP): Measures output relative to the weighted average of all inputs, considering factors like technology and economies of scale.
Formula: Output / Total Input (Weighted Average)

Revenue-Based Productivity Measures

These measures look at financial results compared to different inputs, which makes them especially helpful in service industries.

Revenue per Employee: This looks at how much revenue each employee generates, helping you assess the efficiency of your workforce. It also helps benchmark employee performance and compare efficiency across different organizations.
Formula: Total Revenue / Number of Employees
Profit per Employee: Similar to revenue per employee, but focuses on profit instead.
Formula: Total Profit / Number of Employees

Other Common Productivity Formulas

Output per Machine Hour: This is a measure of machine efficiency, telling you how much output is produced per hour by a machine.
Formula: Total Output / Machine Hours
Efficiency Ratio: Often used in manufacturing, this ratio compares the standard output to the actual output to assess efficiency.
Formula: Standard Output / Actual Output

Can You Always Measure Productivity?

Sometimes, you can use all the formulas available and track all productivity levels, and it may not be enough. Why? Because there are certain jobs, in which it may difficult to measure efficiency with a mathematical formula.

These jobs include customer service jobs with customer service representatives whose job is to keep good relationships with clients, creative workers (artists, writers, designers), research and development, consulting and advisory roles, teaching and education, healthcare, customer service and support, or management.

In this case, the best productivity measurement is client satisfaction and the impact employees’ work has on other people.

But there are often external factors that lie beyond the company’s direct control and can complicate the accurate assessment of how efficiently resources are being used. These may include economic downturns, regulatory changes in the exisitng laws, technological disruptions, market volatility, supply chain disruptions, labor market conditions, or global events.

This is where a good risk mitigation plan can help you prevent crisis and keep current productivity at the right level.

How to Define Your Target Productivity?

Your target productivity are your ultimate goals—the specific thing you want to achieve. So, if you want to improve productivity, you need to know your purpose. Where are you going and why?

How to define it?

Having mission and vision of your business that is aligned with values you represent is can help you create the right strategy with a business plan. Once you have it, you can set specific goals and ways to achieve them.

What do you need to measure? How do you want to track productivity—based on the revenue generated, employee efficiency and specific productivity numbers, or the KPIs?

PRO TIP: If you don’t know where to start from, try using time tracking software. Why? Because it’ll help you understand how your employees work, spot inefficiencies, and see the bigger picture of what state your company is in. From that point, you can start implementing changes.

Remember, no productivity formula will help you if you don’t know what you want to achieve. Numbers and calculations are important but they only make sense when you know how to use them.

Strategies for Improving Productivity and Efficiency

Using the right productivity formula is one thing, but there are certain steps you can take to improve productivity. Here are proven ways of improving productivity of your business.

1) Evaluate Your Work

Whether you want to work on business or your own productivity, start with a thorough checkup.

Identify and address common barriers to productivity. Maybe it’s procrastination or lack of motivation, too many distractions, or too much work? Define the problematic areas of running your business, difficulties, and other factors that contribute to low efficiency.

This will help you learn your weak spots and set realistic expectations for the future.

2) Benchmark

Have your basic benchmarks established so you know how you’re performing against competitors.

Benchmarking against other businesses helps to compare key metrics to understand your strengths and weaknesses, gain new ideas (just remember not to copy the product or services—be unique), and better serve your clients and customers.

What’s more, benchmarking helps to stay agile and adapt to market changes. That way, you can position your business better by learning from others.

For example, TimeCamp, an automatic time tracking software with project management features for individuals and teams of any size.

Onboarding

With TimeCamp, you can track important tasks, hours worked, and see the actual amount of resources used. The tool provides you with a 360-degree angle overview of your business:

Automatic time tracking minimizes the manual effort involved in tracking time.
Accurate timesheets help you understand how employees spend their time.
Expense tracking lets you track costs and keep control of financials.
Project and task management allow you to prioritize tasks and ensure that you are focusing on high-impact activities.
TimeCamp can automate the billing process by tracking billable hours and generating invoices.
By setting goals and monitoring progress within TimeCamp, you can stay motivated and focused. The ability to visualize progress toward a goal can be a powerful motivator.
TimeCamp’s ability to monitor time spent on non-work-related websites or apps can help you identify distractions.
Productivity reports, analytics, and dashboards give you insight into employee performance so you can quickly act on any discrepancies.

TimeCamp offers a range of features that can help you track, analyze, and optimize how you use your time, ultimately leading to enhanced productivity.

Get to know where your time goes with TimeCamp!

Track time in projects and tasks, create reports, and bill your clients in just one tool.

4) Automate Work

According to statistics, 94% companies perform repetitive, time-consuming tasks. Automation has improved jobs for 90% of knowledge workers and productivity for 66% of them.

The right tools will help you eliminate tasks that can be automated. This, in turn, will save time and money.

Use the software that best fits to your workflow, and workstyle of employees. Also, make sure it’s user-friendly, and corresponds to all the business processes in your company.

5) Take Care of Employees

Remember that the efficiency of your employees work isn’t just about numbers, stats, and figures. The real productivity metrics are employee satisfaction, their willingness to work, and the effort they put into their work, even when sometimes it may not be visible.

Engaged employees produce better outcomes so make them happy and create a positive work environment where they feel valued and can freely share their feedback.

6) Track Progress

Track progress to make improvements and always stay on top of your work.

You can do it either with productivity formulas or dedicated software. Tracking work is important because it helps to see where you’re going and how you’re doing.

7) Don’t Rush and Don’t Worry

Take it all one step at a time. Implementing changes should be done in a smart way with all the appropriate tools you have at your disposal. All changes take time. We all know that Rome wasn’t built in a day.

Also, don’t be afraid of changes. Abraham Maslow said, “In any given moment, we have two options: to step forward into growth or step back into safety.” Changes are good as they help us grow but also realize if what we’re doing is the right thing.

Conclusion

Successful business knows where to go, and knowing how to calculate productivity will help you go in the right direction. Don’t forget to base your calculations not only on rare numbers and metrics but also on how your employees perform and what you can do to help them.

The right time tracking software can bring their productivity to the next level and make them happy with their work.

Kate Borucka Kate is a freelance translator, copywriter, and a content writer specializing in time tracking software, time management, and productivity. When not researching new software, she's reading books, or spending time outdoors.