It will always be my recommendation for any business owner to keep a close (non-invasive) eye on their team and their teams performance but sometimes it's not the easiest thing to do. What if you could make it easier? What if there was a more subjective way, to review the efficiency of your teams performance? There is.
IN THIS ARTICLE
→ What is the Performance Efficiency Factor tracking?
→ Power of Historical Insight
→ Performance Efficiency Factor in action
→ Why focus on hours worked?
→ Stabilising is not a bad goal if you can't increase it!
→ Conclusion
WHAT IS PERFORMANCE EFFICIENCY FACTOR TRACKING?
The Performance Efficiency Factor, also known as revenue per hour worked, is a metric used to gauge the output or revenue generated per hour of work contributed by employees in a business. It is calculated by dividing the total revenue by the total hours worked, excluding hours of leave. This metric helps assess how effectively the business is utilizing its workforce to generate revenue. It’s important for understanding not only the efficiency of existing staff but also how new hires or changes in staffing levels might impact overall revenue performance.
Bottom Line: Total Revenue Generated/Total Hours Worked
THE POWER OF HISTORICAL INSIGHT
Historical insight over a three-year period is crucial for understanding the Performance Efficiency Factor, as it provides context for assessing trends and changes in revenue per hour worked. By examining how this KPI has evolved, businesses can identify patterns, gauge the effectiveness of staffing decisions, and benchmark performance against past data. This longitudinal view helps in evaluating whether improvements or declines in efficiency are due to changes in workforce size, operational practices, or external factors. It also allows for more informed strategic planning by highlighting how shifts in staffing and business operations impact overall revenue generation, ensuring that adjustments are based on comprehensive and accurate performance data.
Bottom Line: At bare minimum try and use 3 years of data to provide the most insight, and potential gains to be leveraged.
PERFORMANCE EFFICIENCY FACTOR IN ACTION
In the video, the Performance Efficiency Factor is calculated with a simple example. If your business made $585,000 in revenue and your employees worked a total of 2,600 hours, you would divide the revenue by the total hours worked. So, $585,000 divided by 2,600 hours equals $225 per hour. This means that for every hour worked by your team, your business earned $225. This calculation helps you understand how efficiently your employees are contributing to your revenue. Remember, entitlements are not included in this equation.
WHY FOCUS ON HOURS WORKED
Tracking hours worked is crucial because it provides a clear, objective measure of labor efficiency by focusing solely on quantitative data rather than qualitative aspects. By recording and analysing the total hours worked, businesses can calculate the Performance Efficiency Factor, which reveals how effectively revenue is generated per hour of work. This approach removes subjective judgments about individual performance and instead relies on concrete numbers to assess productivity. This objective analysis helps identify areas where efficiency can be improved, supports better decision-making regarding staffing and resource allocation, and ensures that labor costs are closely aligned with revenue generation. Accurate tracking thus offers a straightforward, unbiased view of labor effectiveness, essential for optimising business operations and achieving financial goals.
Bottom Line: Focusing on the hours worked helps provide a more objective analysis of the labour utilisation within your business, without concerning itself with qualitative aspects of the labour.
STABILISING IS NOT A BAD GOAL IF YOU CAN'T INCREASE IT!
Focusing on stabilizing the Performance Efficiency Factor can be more beneficial than constantly trying to improve it, depending on the stage of your business. When adding new employees or expanding operations, it's often more practical to aim for consistency rather than continuous improvement in revenue per hour worked. Stabilising this metric ensures that as your workforce grows, you maintain a balanced and predictable level of efficiency. Attempting to improve the metric too aggressively during periods of significant change or growth can lead to unrealistic expectations and potential strain on resources. You can better manage the integration of new staff, adjust to evolving business dynamics, and maintain a steady trajectory towards long-term profitability.
Bottom Line: Sometimes it is better to focus on stabilising this number and achieving consistency, over trying to skyrocket it.
CONCLUSION
In conclusion, understanding and tracking the Performance Efficiency Factor, or revenue per hour worked, is vital for assessing and improving your business's productivity and profitability. By focusing on historical data over a three-year period, you gain valuable insights into trends and patterns, which helps in making informed decisions about staffing and resource management. While striving for higher efficiency is important, stabilizing this metric during times of growth or change can be more practical and sustainable. Accurate tracking of hours worked ensures an objective evaluation of labor efficiency, free from subjective biases, and provides a reliable basis for optimizing operations. Ultimately, balancing efforts to improve and stabilize this KPI will contribute to a more effective and financially sound business strategy.
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