Tag: Productivity

How productive is your business and why you should lose sleep over it?

Increasing your productivity should be a key focus as a business owner. It means you leave nothing on the table, maximizing your value all the time.

Pavlo discussed the difference between productivity and efficiency, and how to calculate your business’s productivity in this podcast from The Money Show:

Increasing your productivity should be a key focus as a business owner. It means you leave nothing on the table, maximizing your value all the time.

I recently met a manufacturer in the cosmetics and homecare industry. They make creams, ointments, soaps, and the like.

Looking to exit, a valuation of $20m had been offered and they wanted a view.

Their stunning, clean factory glistened with shiny machinery and equipment and a professional team gleamed with pride. The business owner felt that they could do better than the offer. We got to work.

After a day, we discovered that the business was running at 46% of its productive capability. After another day, we learned that the business enjoyed an 87% efficiency indicator.

What does this all mean?

Efficiency is about doing the same with less, while productivity is about doing more with the same. They are miles apart. Closing the productivity gap would add another $15m to the current offer based on the same valuation multiple. What’s best, is that I could be done in just 2 short years. 

How to calculate it?

Productivity measures the gross value added per worker

Productivity = turnover – consumption costs [(raw materials used in the production process + energy and materials + water + rates and taxes + consumables and packaging) + (services including sub-contractors + plant and equipment hire + tech, marketing, HR, accounting services + rent)]

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Divided by workers [owners and employees all active in the business]

How to get it right?

  1. Mindset
  2. Awareness and attitude – a growth mindset is vital
  3. Respect time – invest it or spend it
  4. Leadership – less time doing and more time leading, mentoring, delegating

  1. Diagnosis
  2. Core, strategic vs everything and anything
  3. Outsource expertise
  4. Increase efficiency, and innovate activities

  1. Execution
  2. Team driven to institute
  3. Measured to manage

  1. Change
  2. Culture and ethos of who we are and how we do what we do
  3. Hire for it, fire for it, reward for it

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