We're still open and ready to help, even in this pandemic. Get in touch to see how we can support your business.

What is productivity and why should small businesses care?

What is productivity and why should small businesses care?

We keep hearing about productivity in the news, but what does productivity mean for small business owners?

Published on
December 2017

We keep hearing about productivity in the news: The BBC reported in late 2016 that productivity had finally returned to pre-crisis levels. For January to March 2017, productivity had then fallen back below those 2007 levels. And now, we hear it has fallen again.

But what is productivity?

Productivity is a measure of how much we can achieve for each hour we work.

At a national level, it’s calculated as Gross Domestic Product (GDP) divided by the number of hours worked by the whole nation. Gross Domestic Product is the total value of all the goods and services produced by a country.

You can use the same measure in your business: Add your profit to your wages bill to give you the value of work produced. Then divide this total by the number of hours worked.

For example, if your profit last year was £50,000 and you’d paid yourself and your two workers £150,000 between you, then the value of your work was £200,000. Divide that by the number of hours worked (assuming 35 hour weeks) and you’ll get £36.63 per hour.

On its own, that figure won’t mean much. You’ll want to compare it to the same figure for a year ago, or more, to see if you are improving or moving backwards. You may want to compare your figure to the national average of the UK and other countries.

If you know that the same calculation last year gave you £40.00 per hour, then you know something has changed for the worse. If it was £30.00, then excellent, you’ve improved productivity.

Why would small business owners care about productivity?

Government worries about productivity because it affects the amount of tax they can collect. Small business owners should be aware of this measure too, but for a far more personal reason.

In short, the more productive your business is, the more money you are making for each hour of work. If you can find ways to be more productive, then you may be able to cut down on the number of hours you work. Or improve your own wages while not having to work longer hours.

The UK is falling behind the US, Germany and France in terms of productivity. Small businesses make up 51% of all UK private sector turnover, so small businesses aren’t immune from this.

“it takes a German worker 4 days to produce what we make in 5—Philip Hammond”

This presents those of us in small businesses with a unique opportunity. It must be possible to be more productive (like the US and Germany). And it is a lot easier for us to make changes in our businesses than it would be for a larger company.

So, what can we do?

  • Look after ourselves and our workers. Happy, healthy workers are more productive.
  • Invest in training. Better skills, means higher output.
  • Invest in technology. Let’s not waste time on jobs that we can automate.
  • Consider company culture. This is the hardest one to change, but German culture in particular promotes hard work and diligence, and could explain some of the differences in output.

What do you think? Can small businesses seize this opportunity? Leave a comment to let me know what you think.

Related service

Business process improvement service

Optimising your business processes.

Read more

Free download

About the author

About Middlestone

Middlestone Business Analysis helps small businesses achieve more with their existing resources. We help reorganise operations, automate tasks and install customised processes and systems to keep small businesses organised and to speed up administrative work. To learn more, visit our services page.

Follow us on LinkedIn or Twitter.

If you would like a free initial consultation, or you are interested in an independent business review, please use our contact form.

Contact us to discuss your business


Other recent articles


The role of Business Analysis in small business growth

Business Analysts help businesses to change, adapt and grow. They identify business’ needs and put in place practical solutions.

Read more
Crazy blurred carousel

Why are small business owners so busy?

Everyone knows that running a business is more than a full-time job. But why are small business owners so busy, and what can we do about it?

Read more
Mac pro

7 steps to choosing software that is right for your business

Following these 7 steps to software selection will help you make a good decision when choosing software for your small business!

Read more
Small business process mapping

4 reasons why small businesses need process maps

Process maps are not just for large organisations. Process mapping can be invaluable, even vital, to small businesses.

Read more
Social media marketing automation

Cheap social media automation for small business

These 5 cheap cloud-based apps will help you automate your small business social media accounts without breaking the bank.

Read more
Empty meeting room

4 business experts discuss the benefits of automation

In recent years, automation has provided a way to cut costs, save time or improve quality for businesses. But what is it? And how could it benefit your business?

Read more
man filling out application form

What a difference a form makes

Sometimes small changes to the way some manual tasks are completed can make a big difference.

Read more
New Year 2017

Kaizen versus New Year’s resolutions

The first new year’s resolutions were made 4,000 years ago. Kaizen became popular only 30 years ago. While most New Year’s resolutions fail, Kaizen is proven to lead to significant business improvements.

Read more
Seven carved on wood

7 simple rules of good project management

These seven principles will help you increase your chances of delivering a successful project. They come from the latest revision of PRINCE2.

Read more
1980s office worker

Google solved Microsoft's problem for me

My own experience with Windows 10. Crisis averted by Google Drive. Thank you Google!

Read more
The agony of defeat

High street banks sapping enthusiasm from business

My own experience with three leading high street banks. Their incompetence surprised me.

Read more
Broken down hut with a patched up roof

7 signs a business process is broken

Sometimes it is easy to spot when something is broken. But not always. Do any of these signs seem familiar? Are your business processes broken?

Read more
Making business run smoothly | Smooth flowing river

We know it's not all about us, but… just this once, it is

Introduction to Middlestone Business Analysis and the Process in Progress blog.

Read more