PRODUCTIVITY, PROFITS AND SANITY

Picture this: you, the mighty business owner, battling through the daily grind, armed with nothing but a to-do list and a can of Red Bull. In such a whirlwind, worrying about productivity seems secondary. Who has time to worry about productivity when the whole schedule needs to be reworked due to absences? Here’s the thing: managing productivity is crucial for business owners and here are three reasons why.

First, productivity directly impacts your bottom line. With limited resources, every dollar, and every hour count. Increased productivity means more output with the same or fewer resources, translating into higher profits. It’s the secret weapon in your fight to not just survive but thrive and win against your competitors!

Second, high productivity is proven to boost morale and engagement, turning your team into a powerhouse of productivity. When employees see how their efforts directly contribute to the business’s success, it supports a positive work culture, leading to lower turnover rates, higher job satisfaction, and a more cohesive team.

Third, it benefits you personally in addition to increasing the size of your bank account. No more drowning in the day-to-day grind—now you’re freer to harvest the time you need to dream big, strategize for the future, and unleash your inner innovator. And achieve a better balance between work, family, and anything else that you’re passionate about.

So, how do we measure productivity? The classic definition is “work output divided by inputs”. This is such a generic formula it can be used in a wide variety of situations. Inputs are things like hours worked, money spent, raw materials used, etc. Outputs are things like jobs completed, customers served, revenue generated, widgets made.

There are also meta productivity measures and micro productivity measures. Businesses can, and should, employ both. Let’s look at some examples.

A simple meta productivity measure is “revenue per employee”. It’s crude because the term “employee” isn’t very precise, which leads business owners to think in terms of “Full Time Equivalent (employees) (FTE)”. Calculate how many months of labor you paid for last year, then divide that number by 12. Voila! Your number of FTEs. Another meta productivity measure could be “customers served per employee”. Same caveats as “revenue per employee”. Both are useful measures of how well your business is doing overall, and it’s a metric that you would want to track over time. You’re on a mission to continually improve revenue per employee, for example.

There are scores of useful micro productivity measures. What are the key outputs you’re after, and what are the inputs that make it happen? In sales, for example, consider: “Revenue per Sales Employee”; “Estimates Given per Employee”; and the classic “Conversion Rate” (Sales closed per Leads Contacted). For Marketing, “Cost per Lead” is a classic, but you may also track the productivity of campaigns, such as “Leads per Facebook post”. In scheduling, Hours Scheduled per Hours Available is a key productivity metric.

For workers, “Billable hours per Hours Worked” is a classic productivity measure. In the home services sector, a good benchmark of productive time is 85% of the hours employees work. An analog would be “Revenue Generated per Hours Paid”. Both measures produce a ratio that can be measured and tracked over time. In some cases, you can compare your results to industry data that is routinely collected and published.

What about staff? My go-to is “Labor Efficiency”, which is determined by dividing the absolute amount of gross profit your business generates by the cost to pay your admin staff. It’s a measure of how well your staff manages the business to maximize gross profits. After all, that’s why they’re on the team, right? Ratios between 3.0 and 5.0 are desirable (i.e., for every $ spent on admin staff, the business generates $3 to $5 in gross profit).

In conclusion, productivity is not just a buzzword; it’s a lifeline for small businesses. Maximizing productivity impacts financial performance, employee morale, strategic planning, and work-life balance. By prioritizing productivity, small business owners can unlock the full potential of their businesses, driving growth, innovation, and overall success. So, if you’re a business owner, it’s time to roll up your sleeves and make productivity your best friend. Your business—and your sanity—will thank you for it.