The best small business owners use the throughput formulas to quantify the gap between outputs and inputs involving where they are and where they want to be across their core operating costs related to Net Sales and profits.
Overview
In the business management theory of constraints, throughput is the rate at which a system achieves its goal. Throughput can best be described as the rate at which a system generates its products or services per unit of time. Throughput Ratios calculate the rate at which a business generates money. It measures the productivity of a machine, procedure, process, or system over a unit period, such as output per hour, cash turnover, or the number of orders shipped.
Throughput Ratios allow managers to understand better how efficiently they are manufacturing goods or conducting services by establishing their baseline and the maximum rate at which something can be processed. The most straightforward throughput measures to calculate from your P&L Statement are the following:
- Net Income Sales Productivity
- Gross Profit Sales Productivity
- Operating Income Sales Productivity
- Cash Throughput Volume
- Total Spend Productivity
- Direct Labor Investment Productivity
- Subcontractor Spend Productivity
- Materials Spend Productivity
- Equipment Expense Productivity
- Office Staff Investment Productivity
- SG&A Expense Productivity
The best managers use these formulas to quantify the gap between where they are and where they want to be or could be across their business.