Productivity Ratio: Formula, Calculation & Analysis

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Lesson Transcript
Instructor: Karin Gonzalez

Karin has taught middle and high school Health and has a master's degree in social work.

In this lesson, you will learn the definition of a productivity ratio and will be given the formula to calculate productivity. The lesson will also analyze productivity in different realms.

What Is the Productivity Ratio?

Brianna opened her very own clothing boutique in South Beach, Miami. Following a period of success, Brianna noticed that her sales were decreasing. In an effort to pinpoint the reason for the decline, she decided to ascertain if her employees were being as productive as possible.

In order to do this, she needed to look at the productivity ratio. The productivity ratio is a fraction of output over input.

Formula

This image gives you the formula for the productivity ratio and a general definition of output and input. In measuring productivity, you need to decide what numbers you are going to plug in for input and output in the formula.

Input is what a business puts in to turn a profit (output). Therefore, the most common input measured is hours and the most common output is money when business owners, CEOs, or general managers are trying to decide if their business is efficient, productive, and profitable.

But input is not always measured by hours worked. And output is not always measured by money made. Input could also be measured by raw materials used, energy, amount of land, etc. It is pretty much anything that is put forth to get an output and to make a profit! Output could also be measured by amount of products produced, number of sales, etc. It is pretty much anything that is a result of the input put forth.

Example and Analysis

Let's look at an example in more detail.

Leo, a supervisor at a financial services company, wants to evaluate the level of productivity and effectiveness of his four new financial advisors, Jim, John, Jorge, and James. He decides to use the productivity ratio and use the average number of cold calls per day as his input and average number of accounts opened per day as his output.

As you can see from this image, Leo put each advisor's output (accounts opened on average per day) over their input (cold calls made per day) and came up with a decimal quotient that indicates their productivity.

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