In its simplest form, the productivity formula looks like this: Output ÷ Input = Productivity. For example, you have two salespeople each making 10 calls to customers per week. The first one averages 2 sales per week and the second one averages 3 sales per week. By plugging in the numbers we get the following productivity levels for each sales person. For salesperson one, the output is 2 sales and the input is 10 sales: 2 ÷ 10 = .2 or 20% productivity. For salesperson two, the output is 3 sales and the input is 10 sales: 3 ÷ 10 = .3 or 30% productivity. Knowing how to measure and interpret productivity is an invaluable asset for any manager or business owner in today’s world. As an example, in the above scenario, salesperson #1 is clearly not doing as well as salesperson #2. Knowing this information we can now better determine what course of action to take with salesperson #1. Some possible outcomes might be to require more in-house training for that salesperson, or to have them accompany the more productive salesperson to learn a better technique. It might be that salesperson #1 just isn’t suited for sales and would do a better job in a different position.
How to Measure Productivity With Management Techniques
Knowing how to measure productivity allows you to fine tune your business by minimizing costs and maximizing profits:
1. Identify Long and Short-Term Goals
Having a good understanding of what you (or your company’s) goals are is key to measuring productivity. For example, if your company’s goal is to maximize market share, you’ll want to measure your team’s productivity by their ability to acquire new customers, not necessarily on actual sales made.
2. Break Down Goals Into Smaller Weekly Objectives
Your long-term goal might be to get 1,000 new customers in a year. That’s going to be 20 new customers per week. If you have 5 people on your team, then each one needs to bring in 4 new customers per week. Now that you’ve broken it down, you can track each person’s productivity week-by-week just by plugging in the numbers: Productivity = number of new customers ÷ number of sales calls made
3. Create a System
Have you ever noticed that whenever you walk into a McDonald’s, the French fry machine is always to your left? This is because McDonald’s created a system. They have determined that the most efficient way to set up a kitchen is to always have the French fry machine on the left when you walk in. You can do the same thing and just adapt it to your business. Let’s say that you know that your most productive salespeople are making the most sales between the hours of 3 and 7 pm. If the other salespeople are working from 9 am to 4 pm, you can potentially increase productivity through something as simple as adjusting the workday. Knowing how to measure productivity allows you to set up, monitor, and fine tune systems to maximize output.
4. Evaluate, Evaluate, Evaluate!
We’ve already touched on using these productivity numbers to evaluate and monitor your employees, but don’t forget to evaluate yourself using these same measurements. If you have set up a system to track and measure employees’ performance, but you’re still not meeting goals, it may be time to look at your management style. After all, your management is a big part of the input side of our equation. Are you more of a carrot or a stick type of manager? Maybe you can try being more of the opposite type to see if that changes productivity. Are you managing your employees as a group? Perhaps taking a more one-on-one approach would be a better way to utilize each individual’s strengths and weaknesses. Just remember that you and your management style contribute directly to your employees’ productivity.
5. Use a Ratings Scale
Having clear and concise objectives for individual employees is a crucial part of any attempt to increase workplace productivity. Once you have set the goals or objectives, it’s important that your employees are given regular feedback regarding their progress. Using a ratings scale is a good way to provide a standardized visual representation of progress. Using a scale of 1-5 or 1-10 is a good way to give clear and concise feedback on an individual basis. It’s also a good way to track long-term progress and growth in areas that need improvement.
6. Hire “Mystery Shoppers”
This is especially helpful in retail operations where customer service is critical. A mystery shopper can give feedback based on what a typical customer is likely to experience. You can hire your own shopper, or there are firms that will provide them for you. No matter which route you choose, it’s important that the mystery shoppers have a standardized checklist for their evaluation. You can request evaluations for your employees friendliness, how long it took to greet the shopper, employees’ knowledge of the products or services, and just about anything else that’s important to a retail operation.
7. Offer Feedback Forms
Using a feedback form is a great way to get direct input from existing customers. There are just a couple of things to keep in mind when using feedback forms. First, keep the form short, 2-3 questions max with a space for any additional comments. Asking people to fill out a long form with lots of questions will significantly reduce the amount of information you receive. Secondly, be aware that customers are much more likely to submit feedback forms when they are unhappy or have a complaint than when they are satisfied. You can offset this tendency by asking everyone to take the survey at the end of their interaction. This will increase compliance and give you a broader range of customer experiences, which will help as you’re learning how to measure productivity.
8. Track Cost Effectiveness
This is a great metric to have, especially if your employees have some discretion over their budgets. You can track how much each person spends and how they spend it against their productivity. Again, this one is easy to plug into the equation: Productivity = amount of money brought in ÷ amount of money spent. Having this information is very useful in forecasting expenses and estimating budgets.
9. Use Self-Evaluations
Asking your staff to do self evaluations can be a win-win for everyone. Studies have shown that when employees feel that they are involved and their input is taken seriously, morale improves. And as we all know, high employee morale translates into higher productivity. Using self-evaluations is also a good way to make sure that the employees and employers goals are in alignment.
10. Monitor Time Management
This is the number one killer of productivity in the workplace. Time spent browsing the internet, playing games, checking email, and making personal calls all contribute to lower productivity[1]. The trick is to limit these activities without becoming overbearing and affecting morale. Studies have shown that most people will adhere to rules that they feel are fair and applied to everyone equally. While ideally, we may think that none of these activities should be done on company time, employees will almost certainly have a different opinion. From a productivity standpoint, it is best to have policies and rules that are seen as fair to both sides as you’re learning how to measure productivity.
11. Analyze New Customer Acquisition
We’ve all heard the phrase that “It’s more expensive to get a new customer than it is to keep an existing one.” And while that is very true, in order for your business to keep growing, you will need to continually add new customers. Knowing how to measure productivity via new customer acquisition will make sure that your marketing dollars are being spent in the most efficient way possible. This is another metric that’s easy to plug into the formula: Productivity = number of new customers ÷ amount of money spent to acquire those customers. For example, if you run any kind of advertising campaign, you can compare results and base your future spending accordingly. Let’s say that your total advertising budget is $3,000. You put $2,000 into television ads, $700 into radio ads, and $300 into print ads. When you track the results, you find that your television ad produced 50 new customers, your radio ad produced 15 new customers, and your print ad produced 9 new customers. Let’s plug those numbers into our equation. Television produced 50 new customers at a cost of $2,000 (50 ÷ 2000 = .025, or a productivity rate of 2.5%). The radio ads produced 15 new customers and cost $700 (15 ÷ 700 = .022, or a 2.2% productivity rate). Print ads brought in 9 new customers and cost $300 (9 ÷ 300 = .03, or a 3% return on productivity). From this analysis, it is clear that you would be getting the biggest bang for your advertising dollar using print ads.
12. Utilize Peer Feedback
This is especially useful when people who work in teams or groups. While self-assessments can be very useful, the average person is notoriously bad at assessing their own abilities. Just ask a room full of people how many consider themselves to be an above average driver and you’ll see 70% of the hands go up[2]! Now we clearly know that in reality about 25% of drivers are below average, 25% are above average, and 50% are average. Are all these people lying? No, they just don’t have an accurate assessment of their own abilities. It’s the same in the workplace. Using peer feedback will often provide a more accurate assessment of a person’s ability than a self-assessment would.
13. Encourage Innovation and Don’t Penalize Failure
When it comes to productivity, encouraging employee input and adopting their ideas can be a great way to boost productivity. Just make sure that any changes you adopt translate into higher productivity. Let’s say that someone comes to you requesting an entertainment budget so that they can take potential customers golfing or out to dinner. By utilizing simple productivity metrics, you can easily produce a cost benefit analysis and either expand the program to the rest of the sales team, or terminate it completely. Either way, you have gained valuable knowledge and boosted morale by including employees in the decision-making process.
14. Use an External Evaluator
Using an external evaluator is the pinnacle of objective evaluations. Firms that provide professional evaluations use highly trained personnel that even specialize in specific industries. They will design a complete analysis of your business’ productivity level. In their final report, they will offer suggestions and recommendations on how to improve productivity. While the benefits of a professional evaluation are many, their costs make them prohibitive for most businesses.
Final Thoughts
These are just a few of the things you can do when learning how to measure productivity. Some may work for your particular situation, and some may not. The most important thing to remember when deciding how to track productivity is to choose a method consistent with your goals. Once you’ve decided on that, it’s just a matter of continuously monitoring your progress, making minor adjustments, and analyzing the results of those adjustments. The business world is changing fast, and having the right tools to track and monitor your productivity can give you the edge over your competition.
