How to Calculate Labor Productivity and Why It Matters
The labor productivity of a business is calculated by dividing the value of its goods or services by the total number of hours worked. By measuring labor productivity, companies in manufacturing industries and the construction sector alike can glean valuable insights about many crucial factors that directly impact essential business decisions. These include, but are not limited to, hiring, training, resource and project management, and attrition rates.
Calculating the labor productivity of your business can be the first step in dramatically improving your bottom line.
Why Calculating Labor Productivity Is Important
Labor productivity indexes are used by businesses to inform high-level decisions and target areas for improvement. Resource allocation, staffing, technology adoption, and space management are just a few areas that can be impacted by gaining a better understanding of your business’s labor productivity. With higher labor productivity, companies can produce more goods and services with the same amount of work.
How To Calculate Labor Productivity
Calculating labor productivity is simple. Just follow these three steps:
1) Calculate the total overall value of your business's goods and services
2) Calculate the total number of hours worked by your employees*
3) Labor Productivity = total value of goods/services ÷ total number of hours worked
*It’s important to note that labor productivity can be calculated for your business as a whole or for specific segments. You’ll need to assess your employees' roles to understand whom to include in your calculations.
Improving Construction and Industrial Productivity
Improving productivity is a benchmark goal for any business, and the construction and manufacturing sectors are no exception. Evaluating your business’ labor productivity can reveal what areas need attention or recalibration and put you on the path towards increasing your output and lowering your operating costs. Find out more about increasing construction productivity and industrial productivity.
Crescent Can Help
At Crescent Electric, we understand the challenges faced by businesses in both the industrial and construction markets looking to improve their labor productivity to become more efficient and save money. In addition to carrying a wide range of best-in-class products available both in branches and 24/7 online, our technical support and engineering teams are here to help. Contact us to learn more!