The more effective your office staff is, the higher the likelihood that you are making money. They are foundational to your operation’s ability to make or lose money based on their ability to keep score and collect payment for the work of your direct labor. Often, direct labor productivity tanks when the office isn’t accurately paying them their wages.
Overview
Office Staff Investment Productivity is a Throughput Ratio that measures how efficiently your office staff can convert wages, employment taxes, and assigned benefits into operating profit contributions. This number is calculated by dividing the ending output per period, by the total compensation paid in that period.
Use this measure to confirm the effectiveness of your Office Staff. It’s an overall gauge of the entire staff, not a measure of any single office employee. Use this measure to establish how efficiently your office staff contributes to Operating Profit by dividing Operating Income by the total compensation paid to indirect employees. A high number indicates this is a wise investment. A low number means you are either overstaffed, overpaying your nonrevenue-producing employees, or both.
The more effective your office staff is, the higher the likelihood that you are making money. They are foundational to your operation’s ability to make or lose money based on their ability to keep score and collect payment for the work of your direct labor. Often, direct labor productivity tanks when the office is nonresponsive to their issues, particularly when it involves accurately paying them their wages.
The formula for calculating Office Staff Investment Productivity is as follows:
Output (Operating Profit) / Input (Office Payroll Expense)
A ratio of 1 means that the company is generating the equivalent of 1 dollar of operating profit for every dollar invested in Office Staff. A 2.3 ratio means that the equivalent of $2.30 in operating profit is generated for every $1.00 in office staff compensation paid.
Higher Creates Opportunity: an increasing ratio is an indicator that this investment is becoming more important to your business’s success.
Lower Creates Challenges: a ratio significantly below 1 indicates an insignificant contributor to producing operating profit.