How to Profit from Labour Productivity

Simply Business are Profit & Growth Advisors to Business.

We have found that increasing labour productivity is one of the greatest opportunities for a business to improve its’ profitability. In many cases, the bottom line can be increased by between 50% and 100% as profit margins these days are often very small, and the labour component is often very high.

Before we go too much further, we need to define what is meant by ‘productivity.’

Productive is defined as OUTPUT over INPUT. We believe in labour based organisations input should be measured in terms of hours used, which is obtained from your time sheets. The most interesting part if measuring OUTPUT. It can be measured as simply as hours allowed or it can be measured in terms of physical output, or work value – which is what you are getting paid to produce. The output measure will be specific to your business. The opportunity to grow the bottom line through productivity increase is enormous, and should be investigated by any business that employs large amount of direct labour.

The following is an example of the opportunity;

    10% Increase 15% Increase
Sales $5,000,000 $5,000,000 $5,000,000
Direct Labour $1,750,5000 $1,750,000 $1,750,000
Direct Materials $2,000,000 $2,000,000 $2,000,000
Total Direct Costs $3,750,000
Gross Margin $1,250,000 $1,450,000 $1,600,000
Expenses $1,000,000 $1,000,000 $1,000,000
Net Profit $250,000 $425,000 $600,000
Profit Improvement 0% 50% 140%


Profitability is improved by increasing productivity. I.e. by either increasing OUTPUT for the same input, or reducing input for the same output. The right strategy or combination of these, will be specific to each business.

To improve profitability you need a productivity improvement process, which includes;

  • Measuring what productivity is now (audit)
  • Defining what productivity should be (objectives)
  • Identifying the productivity gap
  • Strategies to bridge that gap;

o   Major variance analysis

o   Labour measurement system

o   Forecasting

o   Labour scheduling process

o   Pre-planning process

o   Labour waste audit

o   Reporting

  • Developing productivity improvement plan
  • Implementing productivity measurement system
  • Regular monitoring & reviewing

We have a ‘Profit from Productivity System’ which can help businesses improve their profitability.

If you would like to explore this further, please visit our website and register for our free seminar on the topic at

Alternatively, please contact the office to arrange a meeting for a free opportunity assessment, which will identify the opportunities available to your business.


Phone: 03 9797 0590