In basketball, your free throw percentage is the ratio of successful shots to total attempts. Let’s say you have an abysmal 2% free throw rate and a lifetime goal of sinking 100 shots in an hour. You could either take 5,000 shots in that time—roughly 84 shots a second—or work on improving your game.
Which sounds easier?
In basketball and business, efficiency matters—and while it’s true you miss every shot you don’t take, it’s also true that NBA players—and successful business owners—aim for high success rates. Think of productivity as your business’s free throw percentage, measuring how efficiently you turn effort into profit.
Here’s what business productivity is, how to calculate it, and eight strategies to help you boost productivity at work.
What is business productivity?
Business productivity measures your company’s economic performance by comparing the resources used with the value created. It’s the ratio of outputs (the total value of goods or services produced) to inputs (labor hours, raw material costs, and other business expenses).
Your business’s productivity directly affects profitability and can predict chances of long-term success. Low productivity means your company is inefficient, with investments yielding low returns. High productivity, on the other hand, means your business successfully generates value, and as your company grows, profits are likely to increase.
How to measure productivity in business
Business productivity is a ratio of outputs to inputs, calculated using this formula:
Productivity = Outputs / Inputs. Here’s how to determine yours:
1. Gather data
The first step to measuring productivity is gathering performance and expense information for a specific period. You need the number of products produced, value per production unit, total hours worked, total material costs, and the sum of other business expenses like rent, utilities, software licenses, and equipment upkeep. You can use your accounting and workforce management software to find these numbers.
When electric lap steel company Steely Pants wants to evaluate Q1 productivity, for example, it gathers the following Q1 figures:
- 1,000 units produced
- Value of $275 per unit
- $7,100 spent on raw materials
- $13,843 in other business expenses
- 900 hours worked
2. Calculate outputs and inputs
Next, quantify your inputs and outputs. To calculate outputs, multiply the total number of units produced by the value per unit. Steely Pants multiplies 1,000 units by a per-unit value of $275 to arrive at $275,000.
To calculate inputs, convert labor hours to a dollar figure. Steely Pants employees are salaried, so it divides total annual employee expenses by four to arrive at a total Q1 cost of $130,000. It then adds the cost of labor hours, material expenses, and business overhead for a total business input of $150,942.
3. Calculate productivity
Finally, divide total outputs by total inputs using the formula:
Productivity = Outputs / Inputs
Steely Pants’ full calculation looks like this:
Productivity = (1,000 × $275) / ($7,100 + $130,000 + $13,842) = $275,000 / $150,942 = 1.822
A productivity ratio greater than one indicates your business is creating value; a number less than one means it isn’t generating enough value to offset operational costs.
In this case, Steely Pants creates just over 82¢ of value for every dollar invested in the business.
Strategies for improving productivity in your business
- Get the lay of the land
- Invest in the right tools
- Empower departments to lead
- Reduce costs
- Monitor performance
- Be a transparent leader
- Manage workloads
- Put productivity second
There are two main ways to improve productivity in the workplace: You can reduce costs or accomplish more with the resources you have. These eight strategies can help:
1. Get the lay of the land
Dividing outputs by inputs is the standard measure of overall productivity, but it’s not the only useful metric. Here’s an overview of common types of productivity:
- Total factor productivity. Total factor productivity accounts for capital and labor investments and what’s called “output elasticity”—a measure of how sensitive outputs are to changes in input.
- Capital productivity. Capital productivity measures outputs as a function of tangible assets like office supplies, materials, and equipment. Calculate it using the formula Capital productivity = (Outputs) / (Value of physical capital − Value of liabilities).
- Labor productivity. Labor productivity measures output by hours worked. Calculate it with the formula Labor productivity =Net sales revenue / Labor hours.Some businesses also track revenue per employee, which is a business’s annual revenue divided by its total number of employees.
- National productivity. National productivity measures economic productivity by combining the outputs of every business in a country. The US Bureau of Labor Statistics reports a country's productivity as the economic growth indicator gross domestic product (GDP).
- Personal productivity. Personal productivity is, well, personal. Generally speaking, it refers to how you approach your tasks—whether by maximizing output, maintaining a sustainable work pace or flow state, or focusing more on quality than quantity.
2. Invest in the right tools
Technology can improve workplace productivity by extending your team’s capacity. Here are some types to look for:
- Collaboration tools. Collaborative tools help employees communicate efficiently, especially for remote teams that might otherwise rely on phone calls and emails. Add an intra-office chat tool or select a project management software system that organizes files and conversations by project and task.
- Process automation tools. Workflow and process automation tools do repetitive tasks like list-cleaning or sending follow-up emails, increasing productivity by freeing up your team members to focus on higher-level tasks.
- Generative AI assistants. Generative AI tools can record meeting notes, generate summaries, support brainstorming, create content, and analyze data—saving employees hours. To choose the right assistant, ask your team about their most time-consuming or disliked tasks, then find tools to address these pain points.
3. Empower departments to lead
Ricky Silver, CEO of plant-based frozen meal delivery service Daily Harvest, recommends empowering your teams to set their own productivity goals. “Productivity is a focus I have found best adopted at the department or team level,” he says.
Ricky also emphasizes ongoing improvement, encouraging teams to make context-informed, growth-oriented decisions. “Framing productivity and efficiency through the lens of continuous improvement allows for the right measures to be adopted within the right context,” he says. “Maybe it’s an accounting team aspiring to deliver a successful month-end close with fewer hours each month, or a digital product team measuring the volume of releases they generate with each sprint, or our supply chain team optimizing for more efficient logistics.”
4. Reduce costs
Many strategies for improving productivity aim to generate more outputs, but you can also increase productivity by maintaining the same output volume and reducing inputs. Simply put, you can cut costs. Here are a couple of strategies:
- Optimize supply chains. Supply chain optimization can lower the cost of material sourcing, warehousing, shipping, and production processes, boosting productivity without increasing demand on your team.
- Audit expenses. List all your business’s expenses, look for redundancies, and eliminate unnecessary costs. Or, hire a professional with experience in your industry to review your budgets and propose cost-efficient changes. Many consultants specialize in productivity, so you can also inquire about solutions that cut costs and help employees maximize productivity.
5. Monitor performance
Ricky stresses the importance of tracking progress.“For an organization to embrace productivity,” he says, “driving a culture of continuous improvement and relevant measurement is key.” He recommends small business owners choose a few key performance indicators (KPIs), resisting the urge to overemphasize total productivity growth.
“Where capacity is limited and prioritization is a must, it’s really important to hone in on a few key KPIs of productivity that matter,” he says. “There can be a desire to simplify objectives down to company-wide goals, but when it comes to driving a culture of continuous improvement in small organizations, you need to maintain a degree of nimbleness as well.”
You might identify other relevant productivity trends, like changes in department, workstream, or individual productivity, remaining responsive to employee feedback on meaningful metrics. “Be flexible to allow those KPIs to resonate with the individual teams.”
6. Be a transparent leader
Recall the last time somebody confided in you. How did you feel? Trusted? Respected? Motivated to help? Transparent communication brings your listeners in on your goals, which can boost employee engagement and productivity.
“I’m a big believer in the power of context,” Ricky says. “The ‘why’ behind a particular focus is just as critical as the ‘how’ in terms of building a culture of ambition and continuous improvement. When in doubt, increase transparency on the rationale for a particular focus, and make sure your team really understands the context.”
Transparency also ensures your team members have the information they need: “Particularly in a hybrid, digital model of working, providing context for the business’s needs and focus areas helps ensure your team doesn’t just get to an answer, but the best answer for the outcome you are seeking.”
7. Manage workloads
Your employees can only do so much—and pushing them too hard can decrease employee satisfaction, contribute to burnout, and lower retention.
A better way to boost employee productivity is to balance employee workflow and workloads. Conduct a workforce utilization study to identify capacity gaps, but be wary of methods that could harm morale or pressure employees to appear busy when they aren’t—like installing tracking software on employee computers.
Instead, allocate time for team leaders to monitor their direct reports’ workflows and responsibilities, encourage them to reallocate tasks to balance workloads, and foster a work environment where employees speak up when they’re at capacity and help out when they have extra time.
Company leaders can help by modeling this behavior: Delegate tasks, ask for help when you need it, and if somebody is working beyond capacity, find a way to take something off their plate.
8. Put productivity second
Boost productivity by building a company culture that authentically prioritizes your team's well-being over productivity gains. While prioritizing outputs over employee physical and mental health can lead to better productivity in the short term, it eventually backfires, leading to burnout and attrition. Instead, hire the right people, trust their desire to excel, and support their growth. Here are some strategies to help:
- Ask for feedback. Encourage employees to share ideas that can improve their work experience and boost productivity, like more employee training, new software tools, a flexible schedule, or extended PTO. You don’t have to grant every request, but consider each one and provide transparent reasons when you turn one down.
- Offer professional development. Professional development is a win-win: It upskills your workforce while paying your employees to learn. To maximize value, solicit suggestions on training subjects and let employees vote for their preferred options.
- Minimize time-wasting activities. Productivity is all about the value of an hour, so cut out unnecessary meetings, redundant tasks, or other time-wasting activities to reclaim time for meaningful work. You’ll boost productivity and show employees you value their time, inspiring them to reciprocate.
Business productivity FAQ
How do you measure business productivity?
The formula for calculating business productivity is Productivity = Outputs / Inputs.
How can I improve business productivity?
Here are six ways to boost productivity:
- Use time-saving technology.
- Reduce business costs.
- Monitor performance.
- Be a transparent leader.
- Manage workloads.
- Invest in your team.
What impacts employee productivity?
Employee engagement, management style, company culture, team skills, available tools, and incentive structure can all affect productivity in the workplace.
Why is business productivity important?
Productivity measures the efficiency with which a business can produce a desired outcome. It directly affects profitability and can predict the chance of long-term business success.
