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Productivity vs Profitability

Businessman analyzing financial report data company operations, balance sheet, fintech

Every business owner wants their business to be profitable. 

There are many factors that lead to a profitable business, including employee productivity. Naturally, when your employees are more productive your profit margins will increase. Productivity and profitability are two sides of the same coin.  Without productivity, there can be no profitability.  What are controllable factors that influence productivity and positively impact profitability?

Defining Productivity and Profitability 

Productivity is defined as the relationship between output and input needed to create a product. Meanwhile, profitability is determined by how much money is left over after a product is produced and all expenses have been paid.

·                Productivity is the best way to measure efficiency. A truly productive team maximizes their output with less effort. Productivity is often confused with effort, while they are related, they are not the same. 

·                Profitability is a measurement of income compared to expenses. As it relates to productivity, profitability can be measured in part by observing the ratio between what you are paying your employees in relation to the amount of work they generate. 

Profitability and productivity work in a symbiotic relationship. As you work to run a successful business, these two factors are essential to your success. 

Practical steps to increase productivity can include:

·        Training Programs: Begin with training programs and initiatives to improve operations within your business. As a business owner, you must ensure your employees are equipped to perform their job to the best of their ability. Often this means leadership training for middle management.  Great managers are the key to profitability. 

·        Practice, Practice, Practice: Once your employees have been adequately trained ensure they continue to practice their new skills. The more your employees practice these skill sets, the more second-nature they will become. Once they become second-nature, your employees will be able to perform their tasks faster and more efficiently. Think about ways to encourage the habits you want to foster. 

·        Encourage constructive feedback: Implementing training programs and leading a team can be challenging. The best way to improve your programs and leadership is to allow your employees to provide feedback. What’s working? What’s not? Where can you improve? Ensure the feedback system gives your employees a sense of safety and that it comes without repercussions. Being heard and being loved are almost indistinguishable for most of us.  So give a little love and let your employees be heard. 

·        Implement follow-up activities: Training and education will not be effectively retained if you do not give your employees the opportunity to continue to use their new skills. As you continue educating your workforce, offer opportunities for them to train newer managers, invite their expertise into the company-wide conversation and remember to reward, reward reward.  

Once you have implemented proper productivity training programs for your employees, you can begin to focus on profitability. How can your employees advance your business’ profitability goals? When your employees feel as though they’re contributing to the greater success of the organization they will work harder to see profits increase. 

Profitability is what keeps your business running. When you inspire your workforce to be more productive, it is all but inevitable that you will see an increase in profit margins.