We have heard the word “productivity” related to the construction industry for some time now. My first touch on this subject was a study of the industry by a consulting firm that started out with a premise that “construction” is 100 years behind the times when it comes to productivity. In other words, they are suggesting you have been producing your output the same way as you did 100 years ago.
The study went on to state that times are changing and went on to demonstrate what construction firms are moving toward in terms of new products, new methods, new equipment, new systems, telecommunications and so on, producing more output in less time, using fewer dollars.
There are a couple of specific examples of construction companies that improved their productivity by 50%-60%. That’s a big number. After thinking about this for a bit, I wondered how smaller, competitive company bids would stand up against a bid from a larger contractor that improved productivity by 50%. I have to assume they would be in the same range. If you believe that you run a tight ship and that your bid would be more competitive against a large contractor because they have more overhead and fixed costs to cover, you may want to rethink that position if, in fact, you are still doing business the same way for the last 10 years of so.
So, how are your personal productivity stats standing up to the test of time? Let us find out using this simple exercise.
- Your productivity 10 years ago
- Your productivity today
- Processes and or cost you can adjust to increase productivity.
Me, I like to start out with how much revenue and gross profit is earned per employee over a certain period. I would find my year-end payroll data for both periods and adjust the employee count to “full-time equivalents” by adjusting for people who did not work a full year. Next, I would pull out my year-end financial statements and find total sales for the year, as well as the gross profit line that is listed before operating expenses. Divide the revenue numbers (sales and gross profit), by the number of full-time equivalent employees and you will have four numbers to compare.
- Sales per employee for today vs. 10 years ago
- Gross profit per employee for today vs. 10 years ago.
Hopefully, the results will tell you 1. You are in better shape than you were 10 years ago. 2. You are in worse shape than you were 10 years ago. 3. No change between now and 10 years ago.
Of course, there should be an adjustment for inflation, but I would not worry about it at this stage. If total sales increased by 20%, then expect the Sales Per Employee number to increase by that same percentage. Same thinking goes for the Gross Profit Per Employee. It is hard to imagine a sales per employee increase not being greater than the sales percentage increase, because every type of company should have improved how they do business during this time period. I would expect, at a minimum, doing work with fewer people in itself improves both results.
Let’s look at an example:
| Sales 10 year ago | Sales 2022 | % > OR < | |
| $10,000,000 | $12,000,000 | 20%> | |
| Number of employees | 33 | 40 | 21%> |
| Per employee | $303,000 | $300,000 | 1%< |
The result of this example requires follow up. I billed 20% more than I did 10 years ago but my revenues per employee is flat, when I would expect it to be $363,000 or 20% higher in line with the revenue change. Is there a billing issue here? Or a workforce issue?
But if you calculate the gross profit per employee, it may be more in line with the 20% increase, which would suggest that costs did not increase at the 20% rate and we in fact “did more with less,” increasing productivity, even though there are more people on the payroll.
As you can tell, this exercise provides questions that need to be reviewed to determine why the numbers are out of sync. To get a better handle on metrics for your type of work, I suggest checking out Google or YouTube, or the government data available for construction trades. And at the very least, I would ask my service vendor to provide metrics for the type of work you do or assist with setting up a set of metrics for you so you can compare productivity on a monthly, quarterly, or annual basis (using trailing 12-month numbers).
Productivity is a basic input vs. output measure that you can use on every part of your business. Do some homework and use it to help manage your business.
