Take Away the Budget Blues – Optimise your Productivity - from Linda at Alluxi

Productivity has 2 levers to play with. The fundamental formula Output / Input requires some form of measurement of your output. The most common measure is £ Turnover, but the pricing of your product or service is heavily influenced by external factors beyond your control such as energy bills, rent, rates and cost of your raw ingredients, materials and consumables. So any growth from Turnover is only useful if your prices don’t change to offset those external costs, which would muddy the productivity waters.

The Volume of goods or service sold is a more transparent measure of productivity, but you need to find a useful and consistent unit across different products. Making a jar of Jam for example, may take half the time than a jar of spicy chutney. The input of time, in hours of work for example is therefore a logical unit, and a consistent standard measure, to ‘add up’ how much product (output) has been produced compared to the number of hours you’ve paid your staff (input).

Lets say you’ve produced a) 100 jars of Jam requiring a total of 1 hour of labour per jar, selling for £5 each, and b) 50 jars of Chutney taking 2 hours of labour each, selling for £10.

BEFORE productivity improvements
Product	Unit	Hours labour required per unit	Volume Produced	Total Hours Req'd Output	RRP	£ Sales Total	Total Hours Paid Input	Productivity
Jam	Jar	1	100	100	£5	£500
Chutney	Jar	2	50	100	£10	£1,000
TOTAL				200		£1,500	300	67%

That’s 200 hours of output your team have ‘produced’. But if you’ve paid for 300 hours of your staffs time, then your productivity is only 67% (200 hours output for 300 hours input). You’ve generated £1,500 of sales.

If you can improve the process, best practices, or remove some of the down time or inefficiencies in the process, and improve the day to day supervision to maintain quality and standards, your team might reduce the labour required by eg. 20% to make a jar of Jam (48 minutes instead of 1 hour), and 25% less time (1.5 hours instead of 2), to make a jar of chutney.

AFTER productivity improvements
Product	Unit	Hours labour required per unit	Volume Produced	Total Hours Req'd Output	RRP	£ Sales Total	Total Hours Paid Input	Productivity
Jam	Jar	0.8	125	100	£5	£500
Chutney	Jar	1.5	120	180	£10	£1,800
TOTAL				280		£2,300	300	93%

So for the same 300 hours you’ve paid in salary, your team have now increased output to ‘280 hours’ worth of product. Your productivity has increased to 93% (280 hours of output for 300 hours input). And you’ve generated £2,300 of sales, for the same salary cost – an uplift of over 50% in your turnover. So long as there have been no other cost increases as mentioned above, this uplift of £800 is, more or less, pure profit.

These are simplified, but realistic, examples. This is purely to demonstrate how powerful productivity measurements can be, and help you focus on efficiencies to ensure your profits are not going to be eroded with the rising salary costs. You’ll also gain an advantage over your (less efficient) competitors, as you won’t necessarily have to resort to price increases to maintain your margins, or to keep afloat.

For you, the business owner, with some simple tools and techniques, you can create these standard measures of time required for each your products. If this resonates with you, and you’d like to learn more about how to apply the above principles in your own business, and maximise your profits, just get in touch with Linda Garcia linda@alluxi.co.uk or call 07717 221368, for an initial chat and more information.

As a first step towards identifying your current business challenges we invite you to complete our free Alluxi Business Success Scorecard. Just 10 minutes of your time could shed light on the hidden opportunities in your business.

www.alluxi.co.uk