Simplicable Guide

3 Examples of the Productivity Formula

John Spacey, June 29, 2017

The productivity formula is a basic measure of the productivity of an economy, industry, organization, team or individual. Productivity is typically used as a measure of labor whereas efficiency is used to measure business processes, machines and automation. The productivity formula is expressed as:

productivity = output / input

Productivity Calculation

The output variable of the productivity formula is usually expressed as a dollar amount. In theory, another measure of output could be used such as a count of production units or service interactions.

The input variable of the productivity formula is usually hours worked. Hours is typically used even when measuring productivity for a year. This can be based on an assumption such as 37.5 hours a week.

productivity = total value of work / total hours worked

Example 1

The productivity of a nation is measured using GDP per worker of $90,000 and average annual hours worked of 1600.

productivity = $90,000/1600 = $56.25 / hour

A high productivity rate indicates a nation that produces high value goods and services. It also indicates extensive use of technology, automation and capital.

Example 2

A craftsperson creates handmade canoes from wood. The craftsperson measures their productivity on a particular project by taking gross revenue of $4400 and the 32 hours spent on the project including sales and administrative tasks.

productivity = $4400 / 32 = $137.5 / hour

As the craftsperson is self employed, they have costs for electricity, rent, materials, parts, marketing and tools. As such, the productivity rate should not be confused with an hourly wage.

Example 3

A production line is heavily automated such that a small number of workers can handle a shift. As such, labor is a small cost compared to the cost of capital equipment, parts and materials. In a month the production line produces goods worth $24 million dollars with 1600 total hours worked.

productivity = $24,000,000 / 1600 = $15,000 / hour

As companies invest in technology and equipment productivity typically rises.

Similar Calculations

The efficiency of business processes and machines is measured with the efficiency formula. It is common for knowledge work to be measured using revenue per employee as opposed to productivity.