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How Productive Are the People in Your Business?

September 23, 2024

As you grow, how do you know if you need more or less peo­ple to be pro­duc­tive and efficient?

With­out a good mea­sure­ment to track either of those things, you’re in dan­ger of not hav­ing enough peo­ple and brain­pow­er to get the work done.

Or, more often, hir­ing and pay­ing for more peo­ple with­out actu­al­ly cre­at­ing any more gross prof­its or results.

Strik­ing the Right Balance

To strike the right bal­ance, you have to know your Labour Effi­cien­cy Ratio (LER). 

In sim­ple terms, that num­ber helps you to mea­sure, ana­lyze, and opti­mize labor pro­duc­tiv­i­ty – to know how many dol­lars of peo­ple costs it takes for every dol­lar of profit.

In oth­er words, to know how effec­tive the peo­ple in your busi­ness are at cre­at­ing value.

“Labor is the only cost that comes to work every day with an attitude.

It’s got some good days, and it’s got some bad days.”

-Greg Crab­tree

The LER Calculation

LER is deter­mined by divid­ing the gross prof­it by the total dol­lars spent on labor.

His rule of thumb, for almost every busi­ness, is a 2:1 ratio:

Every dol­lar of labour (direct and man­age­ment com­bined) should gen­er­ate at least $2.00 of gross profit.

  • Fig­ure out where you are today. You may need to do your own research to val­i­date that the 2:1 ratio fits your industry.
  • In your macro deci­sions and macro report­ing, keep your eye on that 2:1 ratio to strike the right balance.

If you real­ly have the amaz­ing, high-per­form­ing, pro­duc­tive team you say you do – and a great strat­e­gy in the mar­ket – your LER will show it.

“It’s not about bod­ies but dollars.”

-Greg Crab­tree

Here’s a video clip of our con­ver­sa­tion about LER.

And a link to the com­plete inter­view.

The Chal­lenge

  • If you haven’t already cal­cu­lat­ed your LER ratio, I high­ly rec­om­mend that you do.

Oth­er Blogs

Old­er Podcasts

About Lawrence & Co.
Lawrence & Co. is a growth strategy and leadership advisory firm that helps mid-market companies achieve lasting, reliable growth. Our Growth Management System turns 30 years of experience into practical steps that drive clarity, alignment, and performance—so leaders can grow faster, with less friction, and greater confidence.

About Kevin Lawrence
Kevin Lawrence has spent three decades helping companies scale from tens of millions to hundreds of millions in revenue. He works side-by-side with CEOs and leadership teams across North America, the Middle East, Asia, Australia, and Europe, bringing real-world insights from hands-on experience. Kevin is the author of Your Oxygen Mask First, a book of 17 habits to help high-performing leaders grow sustainably while protecting their mental health and resilience. He also contributed to Scaling Up (Rockefeller Habits 2.0). Based in Vancouver, he leads Lawrence & Co, a boutique firm of growth advisors.