Sometimes it is a little difficult to measure how productive a business is without having
to make allowances (or excuses) for market fluctuations.

Business production benchmarking is always very important but even more so when demand is either rising or falling. As most markets are currently coming under pressure, how is business production tracking even if sales were to ease?

There is one very simple indicator that will allow an understanding.

Total sales / number of staff

Simply it is what are the annual sales divided by the number of equivalent full time employees. Sales is just that – sales value. Staff numbers is the number of people working in the entire business including all divisions and management.

A couple of simple examples are if a business has an annual turnover of $5 million and has 12 people working in total – $5,000,000 / 12 = $625,000 per employee or another example is $100,000,000 turnover with 300 people = $333,333 per employee. These 2 examples say nothing about the relative performance between them as there will be inumerable differences in structure, market, product, margin etc. The ratio number in itself is not important. What is happening to that number over time is.

Regardless of each company’s ratio number the one thing to be monitored is – is it increasing or decreasing? This is especially so if there are no significant changes within the business structure. A decreasing ratio number on a lower sales value is a sign that should not be ignored.
This benchmark works well in both rising and falling markets. In an increasing market it can be easy to throw excess labour at the demand. A ratio number that is decreasing in a growing market points strongly to inefficiency. Although that may be able to be justified in the short term, great care needs to made that it returns to an increase in time.

In a declining market a strong reassurance of good management is to see the ratio number increase. Labour is being adjusted to ensure a productive outcome rather than just keeping existing labour occupied.

PTS has always been able to help their customers lift that ratio number in both rising and falling markets by providing output without corresponding labour requirement. Adjusting labour in a falling market is prudent, not having to re-employ in a rising market is even more so.

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