Whether running a startup or a growing business, efficiency and quality are likely always on your mind. Making sure that your company runs smoothly and that you can achieve your business goals starts and ends with productivity metrics in the results-driven environment we’re in today.

Productivity metrics typically represent key performance indicators (KPIs) against which you can measure the efficacy of your team’s work against the targets you have set. But they are not necessarily quantitative. They can also be qualitative, as defining the right metrics for your case is an individual process for each business. While it may take some time and effort to set them up and understand their dynamics, the process certainly pays off. In fact, it is essential for your company’s success.

That’s how you can ensure your organization is on track for the growth goals you’ve set. Focusing on key metrics also improves employee productivity and makes teams more adaptable, as it allows you to make necessary adjustments in a timely manner. You don’t have to wait until a project is complete to improve it next time. Real-time metrics help you adjust and move on more quickly.

In this guide, you can find the basics about productivity metrics: what they are, why you need them, how you can use them to propel your business forward.

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What are productivity metrics?

In essence, productivity metrics are methods for measuring the effectiveness of your team and your business. Unlike tracking simple efficiency, productivity tracking also implicitly takes into account the quality of the output and its contribution to your company goals.

Productivity metrics are not limited only to measuring the time an employee spends on a task or project. Quantitative metrics typically include measuring by deliverable, by objective, and by generated revenue.

Most importantly, productivity metrics are not simply vanity metrics that look good on paper but don’t impact your business or its goals.

Why you should measure productivity

why measure productivity

Besides illuminating efficiency and output, workforce productivity metrics are key in providing relevant feedback to your employees and inspiring them to develop as professionals. Through these metrics, employees can review their own efficiency, compare with other team members and aim to improve, motivated additionally by performance incentives you may offer.

In order to keep your staff motivated, it’s not only about the numbers: you have to give recognition for their strong skills and constructive tips on the areas they can improve. It’s essential to instill a company culture that doesn’t focus solely on the speed of work, but also on the quality, and thus on the overall efficiency and quality that your team can achieve.

By establishing goals, monitoring progress, and refining processes, you can continuously improve performance across the organization. That includes your performance, that of individual employees, and specific projects.

How do you measure the productivity of employees?

Calculating productivity is the basis of understanding the performance of your team, as well as the profitability of projects. So, how to measure productivity in the workplace?

There are many different ways.

For example, as this Forbes article states, you can calculate the productivity of your sales department simply by taking the total revenue divided by salespeople. Or, you can look at your productivity rates compared to industry standards. You can see how your business stacks up against other agencies, manufacturing companies, or e-commerce sites — whatever your industry is. This will give you a good baseline or goal to reach.

Let’s look at the top techniques for measuring employee productivity to see what’s best for your business.

1. Productivity tracking software

The good news for business owners is that while the productivity metrics may seem complicated, there are tools that have productivity metrics built-in. With the help of an employee productivity and time tracker, you can measure the efficiency of your employees while tracking work hours.

hubstaff employee productivity monitoring

The platform provides you with in-depth productivity insights through daily activity scores based on mouse and keyboard activity. You can use this data as a trend; if activity rates dip well below their usual levels for that team member, they might not have enough to work on at that time. Similarly, if activity rates spike and don’t seem to return to normal levels, you might want to reassign work to other team members so one person isn’t swamped. This could also be a sign that it’s time to outsource some work.

How does it work?

  • Use activity rates to track the productivity levels of each team member over time
  • Optional monitoring features such as screen capture, app, and URL tracking, and more can help track productivity against output
  • Set project budgets so you can see how much is left at each stage of a project
  • See tracked time for each project, team member, and how much is owed all in one place
  • Bonus idea: Use time tracking and agile project management software in sync so you can see how many tasks move from “in progress” to “complete” against the hours worked that week

In this way, you’ll keep your team at peak productivity while ensuring workloads are balanced and no one is being held up by bottlenecks.

Some companies even use activity rates to reward top team members. Giving monthly bonuses or incentives for being in the top 25% for activity rates puts productivity metrics at the top of your team’s mind, and encourages a culture of celebrating wins and striving for improvements.

2. Employee productivity formula

The most well-known productivity measurement is the old-school formula of dividing output by input, or now understood as measuring by deliverable. With this technique, you can gain a perspective on the relation between the time an employee spends at work and the units of work they produce in this time slot.

labor productivity formulaSource: Smartsheet.com

However, the process is quite manual.

How does it work?

  • You have to select what output you want to measure. Typically, it is the number of completed tasks against the deliverables handed over.
  • Then, you have to select the timeframe to examine, which usually ranges from a day to a month.
  • You have to divide the output you have set by the input, which is the hours that the employee has worked. That’s how you get a per hour measure of the units of work for that person.

It is widely accepted in the modern workplace that productivity calculation goes much further than the formula explained above. While this basic approach is still useful in some cases, it is too simplistic to account for the complexity of today’s work. Most of all, it does not include the quality of the work produced, even if it is produced within a record time.

For example, output divided by input does not take into consideration the time spent by employees in activities that don’t have a direct and immediate output, such as assisting colleagues and enriching their knowledge base. This productivity calculation formula also does not recognize the fact that some tasks are much more complex than others, even though they are entered in the formula as equal (just “tasks” or “jobs”).

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3. Revenue per employee productivity metric

As mentioned in the sales example above, there’s a simple (though not as accurate) equation called the revenue per employee ratio.

It can be helpful for certain kinds of teams, especially in sales and marketing, as well as other areas where the output of work is measurable. In order to calculate this metric, you have to divide the total revenue generated by the whole number of employees who have worked toward it.

In some cases, it may be useful to establish the total cost of your workforce by adding up all the expenses that you have for employees: salaries, benefits, and others. Then, you can calculate the effectiveness ratio of your team by juxtaposing your gross profit to the total cost of the workforce.

Most of these productivity measures examples, however, are quantitative. It is worth looking at the flipside as well because often enough, success is not measured only with numbers, but with the quality of output. Many productivity equations simply take into consideration whether a deliverable is delivered and in what time, and not how well it has been completed.

Qualitative metrics also involve some degree of quantitative measuring, such as accounting for the number of revisions per certain types of tasks, mistakes found, and similar.

They are usually measured in the process of quality control, and then the data can be fed into productivity metrics. However, quality indicators are not fully quantifiable and often enough need interpretation. They have to be tailored to the specific context of your industry, exact kind of tasks executed, and additional work that is not measurable but is important, among others.

three team members in a performance review

What can you learn from the metrics?

First and foremost, you can learn how each employee is performing, what their strengths and areas for improvement are, and how to adjust task assignment to optimize workloads.

This is key both in terms of the overall performance of your team, but also for the personal motivation and engagement of each individual. In addition, you can handle task assignment much better, ensuring your business is running at its full potential.

You can also dive deep into different projects, evaluating which tasks require more time and thus, are not as cost effective. In the grand scheme of things, this means you can assess the profitability of the work and make adjustments that meet your business goals.

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Productivity metrics allow you also to provide your employees with meaningful and constructive feedback on their performance. You can formulate productivity tips tailored to each team member.

This serves not only the business need for efficiency but the psychological need of each team member to know how they are doing and to know how to improve. It’s important to keep the human factor in mind because, in the end, people need positive reinforcement, motivation, and sense of personal growth in order to excel.

Get started with powerful productivity metrics today

It’s essential to choose the right indicators for your business and to employ handy tools that do a large chunk of the measurements for you.

Whether you’re already using productivity metrics or are just getting started, the tips in this guide can get you on the right track.

Which metrics do you use?