To remain a healthy and growing enterprise, it is essential to have continual improvement in productivity of your existing workforce. Stated in other words, as the salary level rises, the existing team must also contribute to greater revenue.
However, as most small businesses hit the growth curve, there is no effective way to track the increase in revenue from the existing workforce that it employs. Take for example a scenario: Let’s say that in comparison to the last year, your revenue has increased by 25%. Moreover, the total workforce that you employ has also risen by 15%. How much of this growth can be attributed to the earlier pool of employees without taking into the consideration, the new 15% that has come in?
Here is a more elaborate example:
| Year |
Workforce |
Revenue (in $‘000) |
| 2004 | 10 | 100 |
| 2005 | 15 | 175 |
Thus, the Growth is Workforce (or, W) between 2004 and 2005 was (15 – 10)/10 = 50% and the Growth in Revenue (or, R) was (175-100)/100 = 75%.
We calculate, the Growth from Existing Workforce as:
(R – W)
————
(1 + W)
Or, (75 – 50)
   ————— = 49%
     (1 + 50)
Thus, you can safely assume that the productivity in your organization has improved by 49%.
If this value is continuously falling, it means inefficiencies are cropping up within your organization and you need to upgrade the technology and processes. For IT companies, this value is especially effective, because with time the pool of developers gets more skilled at their work and the productivity improves.
This figure however does not take into accounts any revenue improvements due to increase in prices. Thus, you will have to factor that in to calculate revenue at base level prices i.e. the prices prevailing in the previous year.
Our clients often expand the team of “Dedicated resources†that have and this value helps them appreciate the contributions of the “founding†team members.
