Increasing productivity is a rare win-win, improving the standard of living from a governmental, commercial and consumer perspective.
KEY POINTS * Productivity is essentially the efficiency in which a company or economy can transform resources into goods, potentially creating more from less. * Productivity can effectively raise living standards through decreasing the required monetary investment in everyday necessities (and luxuries), making consumers wealthier and business more profitable and in turn enabling higher government tax revenues. * Economists looking to measure this productivity within a given system generally leverage production functions to determine how different factors of production (i.e. inputs) affect the overall output. * The final important consideration in assessing productivity potential is the production-possibility frontier (PPF), which outlines the maximum production quantity of two goods in the scope of our current technological capacity andsupply.
TERMS
* productivity the rate at which goods or services are produced by a standard population of workers. * Production function
Relates physical output of a production process to physical inputs or factors of production.
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Productivity is essentially the efficiency in which a company or economy can transform resources into goods, potentially creating more from less. Increased productivity means greater output from the same amount of input. This is a value-added process that can effectively raise living standards through decreasing the required monetary investment in everyday necessities (and luxuries), making consumers wealthier (in a relative sense) and businesses more profitable.
From a broader perspective, increased productivity increases the power of an economy through driving economic growth and satisfying more human needs with the same resources. Increased gross domestic product (GDP) and overalleconomic outputs will drive economic growth, improving the economy and the participants within the economy. As a result, economies will benefit from a deeper pool of tax revenue to draw on in generating necessary social services such ashealth care, education, welfare, public transportation and funding for critical research. The benefits of increasing productivity are extremely far-reaching, benefiting participants within the system alongside the system itself.
Productivity Beneficiaries
To expand upon this, there are three useful perspectives in which to frame the value in improving productivity within a system from an economic standpoint: * Consumers/Workers: At the most micro level we have improvements in the standard of living for everyday consumers and workers as a result of increased productivity. The more efficiency captured within a system, the lower the required inputs (labor, land and capital) will be required to generate goods. This can potentially reduce price points and minimize the necessary working hours for the participants within an economy while retaining high levels ofconsumption. * Businesses: Businesses that can derive higher productivity from a system also benefit from creating more outputs with the same or fewer inputs. Simply put, higher efficiency equates to better margins through lower costs. This allows for better compensation for employees, more working capital and an improved competitive capacity. * Governments:Higher economic growth will also generate larger tax payments for governments. This allows governments to invest more towardsinfrastructure and social services (as noted above).

1. What is productivity?
Productivity is a measure of the rate at which outputs of goods and services are produced per unit of input (labour, capital, raw materials, etc). It is calculated as the ratio of the amount of outputs produced to some measure of the amount of inputs used. Productivity measures are used at the level of firms, industries and entire economies.
Depending on the context and the selection of input and output measures, productivity calculations can have different interpretations.
Improving productivity can have connotations of economising on the use of inputs — for example, adopting efficient production processes that minimise waste. Equally, improving productivity can have connotations of yielding more output — for example, using resources in activities or with technologies that generate more output.
Conceptually, productivity is a ‘supply-side’ measure, capturing technical production relationships between inputs and outputs. But, implicitly, it is also about the production of goods and services that are desired, valued and in demand.

Productivity growth is important because it contributes to growth in output, income and living standard

Productivity is a measure of the efficiency of production, that is, of production's capability to create income, which is measured by the formula real output value minus real input value.
Productivity can be expressed as a relationship of outputs compared to inputs in economic processes. In economics it has alternate meanings. For a single input it means the ratio of output to input. When multiple inputs are considered, such as labor and capital, it means the unaccounted for level of output compared to the level of inputs. The inverted ratio of input to output is commonly used at the company level to track individual inputs.
Productivity measures that use one or more inputs or factors, but not all factors, are called partial productivities. A common example in economics is labor productivity, usually expressed as output per hour. At the company level, typical partial productivity measures are such things as worker hours, materials or energy per unit of production.
Productivity is a crucial factor in production performance of firms and nations. Increasing national productivity can raise living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth also helps businesses to be more profitable.[1] * Productivity is essentially the efficiency in which a company or economy can transform resources into goods, potentially creating more from less. * Productivity can effectively raise living standards through decreasing the required monetary investment in everyday necessities (and luxuries), making consumers wealthier and business more profitable and in turn enabling higher government tax revenues. * Economists looking to measure this productivity within a given system generally leverage production functions to determine how different factors of production (i.e. inputs) affect the overall output. * The final important consideration in assessing productivity potential is the production-possibility frontier (PPF), which outlines the maximum production quantity of two goods in the scope of our current technological capacity andsupply * productivity the rate at which goods or services are produced by a standard population of workers. * Production function
Relates physical output of a production process to physical inputs or factors of production.
Productivity is essentially the efficiency in which a company or economy can transform resources into goods, potentially creating more from less. Increased productivity means greater output from the same amount of input. This is a value-added process that can effectively raise living standards through decreasing the required monetary investment in everyday necessities (and luxuries), making consumers wealthier (in a relative sense) and businesses more profitable.
From a broader perspective, increased productivity increases the power of an economy through driving economic growth and satisfying more human needs with the same resources. Increased gross domestic product (GDP) and overalleconomic outputs will drive economic growth, improving the economy and the participants within the economy. As a result, economies will benefit from a deeper pool of tax revenue to draw on in generating necessary social services such ashealth care, education, welfare, public transportation and funding for critical research. The benefits of increasing productivity are extremely far-reaching, benefiting participants within the system alongside the system itself.
Productivity Beneficiaries
To expand upon this, there are three useful perspectives in which to frame the value in improving productivity within a system from an economic standpoint: * Consumers/Workers: At the most micro level we have improvements in the standard of living for everyday consumers and workers as a result of increased productivity. The more efficiency captured within a system, the lower the required inputs (labor, land and capital) will be required to generate goods. This can potentially reduce price points and minimize the necessary working hours for the participants within an economy while retaining high levels ofconsumption. * Businesses: Businesses that can derive higher productivity from a system also benefit from creating more outputs with the same or fewer inputs. Simply put, higher efficiency equates to better margins through lower costs. This allows for better compensation for employees, more working capital and an improved competitive capacity. * Governments:Higher economic growth will also generate larger tax payments for governments. This allows governments to invest more towardsinfrastructure and social services (as noted above)

Strategies to improve profit
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In this guide: 1. Making your business more profitable 2. Calculating profit margins 3. Setting a profit goal 4. Achieving your profit goal 5. Profit drivers 6. Strategies to improve profit
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Once you have identified and measured your key profit drivers, you should develop strategies to grow them, without increasing costs. Making your business more profitable involves looking at ways to increase sales revenue as well as decreasing your costs and benchmarking your business to see where you can save money.
You should also prioritise the strategies you've chosen to improve your profit so you can focus on the most important ones.
Strategies to increase sales revenue * Increase productivity of your staff - recognise and reward staff contributions with staff performance reviewsand teach them sales skills * Develop new product lines - survey your customers about new products * Find new customers - new customers can help grow your business * Find new markets - use market research to determine if you could expand your business into new areas * Customer service - improve your customer service and develop a staff training program * Increase your prices - check if you have priced your goods and services correctly and if you could increase prices without reducing sales * Price discounts - consider price discounts and promotions to increase your customer base (e.g. 2-for-1 deals or happy hour) * Retail displays - use effective retail displays to increase your sales
Strategies to decrease costs * Decrease inventory - stock control is a good way to streamline your business * Decrease direct costs - make sure you have the right suppliers for your business and negotiate for better prices or discounts for buying in bulk * Decrease indirect costs - for example, try to minimise waste and errors in your business by training staff * Decrease overheads - for example, save energy wherever possible or try find a cheaper energy supply company * Benchmark key financials - benchmarking your business helps you compare your costs (like rent and utilities etc.) to similar businesses in your industry to see if you are paying too much
Prioritise your strategies
Once you have chosen strategies to make your business more profitable, you should prioritise them in order of importance. It's a good idea to write down your goals and the corresponding strategies to achieve them, and also how you plan to implement your strategies.
Focus on your more profitable items
Your products or services with the highest gross profit margin are the most important to your business, as they generate more money. Once you have identified your most profitable items you should concentrate on achieving higher sales targets for them. This may require you to rethink aspects of your business or to devise strategies for impr

. Market to your existing customer base.
“The fastest, easiest and most profitable way a business can improve their profitability is to reach out to their existing customer base with an offer to make a repeat purchase. The offer must be related to their initial purchase, restricted to “preferred customers” and remain active for a limited time. Done correctly, it’s not unheard of to see a boost in sales ranging from 30% and higher in less than a month.”
- Charles E. Gaudet II, CEO and Founder of Predictable Profits
2. Strategically leverage social media.
“We have utilized and engaged social media over the last 18 months to leverage and share [our] message with creative content to our audience and build brand recognition. With product specials, updates, giveaways and incentives the new and existing customer is rewarded. This has helped to enhance the 360 degree brand experience and increase our customer traffic, both in-store and online, on a daily basis.”
- Allyson Ames, CEO and Founder of Wonderland Bakery
3. Focus on selling products and services with the highest gross margin.
“Get a niche and concentrate on your highest net worth service or product. Take a minute, sit back and review every piece of your products and services. Is there one where you get the highest return for your money? Gear your next advertising or social media strategy towards your findings.”
Close management of your costs can drive your profitability. Most businesses can find some wastage to reduce, but be careful not to cut costs at the expense of the quality of your products and services.
Look at your key cost areas
Your key cost areas to consider are: * Suppliers - assess whether you are getting the best deal from suppliers. Can you negotiate better terms or do you need to change supplier? Can you drive better deals by consolidating your supplier base? Can you buy on a 'just in time' basis to make more effective use of your working capital? * Finance - review your finance facilities - are they at the most competitive terms available? Are you using any loans and overdrafts effectively? * Premises - examine whether you are getting the most out of your space. Are there more efficient ways to use your premises? Could you sublet some unused space?
Production - assess whether you can cut waste and lower the costs of your materials. Check whether you can adapt your production processes so they are more streamlined, using fewer working hours or resources to cut labour costs. Pricing considerations
It's a good idea to review your pricing regularly. Changes in your marketplace may mean that you can raise your prices without risking sales. However, it's essential to test any price rises before you make them permanent.
Find your best customers
It's not just your price list that affects your profitability - the type of customers you're selling to can also make a big difference.
Consider the Pareto principle (often known as the 80/20 rule) and how it applies to your business. In simple terms, applying the Pareto principle suggests that around 80 per cent of your profit is gained from 20 per cent of your products or services. The same percentage of profit is often also gained from the same percentage of customers.
Focusing on your most profitable customers - even if it means letting the less profitable ones go - may boost your profitability, so long as it is handled carefully.
Can you sell more to your best customers?
You may also be able to sell more to your most *
Six Ways to Improve Profitability
Posted on March 22, 2011 by sbadmin

Increase profitability
Increasing profitability is a key goal for many small-business owners. Here are six cost-effective tactics that could, if implemented properly, help you save money and intensify profits.
1. Control expenses. The advantage of controlling expenses is that for every dollar you save by eliminating an expense, you gain an extra dollar in profits. One way to be conscious of cash flow is to use the zero-based budgeting system.
Zero-based budgeting requires you to begin each year’s annual budget process by setting each category to zero. This approach allows you to see every dollar that goes into the business bank account and decide whether spending that dollar is necessary. Try the approach first with last year’s budget. Once you’ve assessed last year’s budget, it should be easier to decrease expenses.
2. Increase margins. A margin is the difference between the sales price of a good or service and the price the business owner paid to attain that product or service. A small-business owner can increase his margins by raising prices, lowering the costs of goods or services sold, or both. * If you are reluctant to raise prices, keep in mind that customers generally tolerate price increases as long as the increases are competitive with those of other retailers and products. You also want to maintain quality relationships with your customers. * Review the margins on all products and services sold at least once a year. After you review the margins, pick an optimal time to raise your prices. You may consider a price increase when your product or service is in higher demand. When you are calculating the amount of the price increase, do not use an across-the-board percent increase system. Instead, analyze the percent of price increase on each individual item. Also, consider higher margins for lower-priced products and products for which comparison shopping is less common.
3. Reduce marketing costs. Invest in methods proven to increase profits, and stop using methods that show minimal results. There are two cost-efficient ways to do this: * Keep in touch with your customers through email instead of post mail. * Use social media as a way of contact.
4. Manage your inventory. Stay abreast of which products are selling and which aren’t by monitoring your inventory. Based on that knowledge, determine if you are purchasing too few of the top-selling items or too many of the worst-selling items. Adjust accordingly. You will end up meeting customers’ needs and saving money.
5. Develop a database. It’s crucial to keep track of customer purchases, because 20 percent of customers will generate 80 percent of sales. It’s quick and simple to create a customer database.
There are two ways to keep track of customers, what they purchase, and how much they spend: * If you use credit-card processors in your business, you can store customer information automatically. * If you accept cash but not credit cards, you can train your employees to ask for customer information at the point of purchase.
With information from a customer database, you can offer top customers promotions or create a referral system where existing customers are rewarded for sending new customers your way. Now you can keep track of customer purchases, maintain quality customer relationships, and increase profits by obtaining new customers through old ones.
6. Seek add-on sales. When a customer purchases something from you, offer a free sample item that will enhance the value of the original purchase. A free sample may encourage your customer to buy more or refer other customers to you.
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