Labor Efficiency Ratio LER

One of the most important numbers a leadership team must understand is the productivity of people within the business. When considering all the KPI’s a business should measure, Labor Efficiency Ratio or LER is one that best measures the productivity of people within a company. The LER as detailed in Scaling Up by Verne Harnish and the book Simple Numbers, Straight Talk, Big Profits by Greg Crabtree is beneficial because labour is the largest fixed expense in a business, it is the Read More...

In my previous post 4 reasons this is the most important KPI you are not measuring I explained how Labor Efficiency Ratio (LER) is the most important number to small and medium businesses for the following reasons; Different employees have different productivity rates Labor is the most expensive component of your Profit & Loss LER directly correlates to Net Profit LER is a leading indicator As a quick overview, LER is calculated by dividing Gross Profit (Revenue minus Cost of Goods Read More...

If you were to really consider it, what would be the most important number in your business? If you had only one number to measure and judge as the most important, what would that be? If you had a background in sales, you might suggest revenue, or (if you had a successful background in sales) perhaps Gross Profit. If you had a background in accounting you might suggest EBITDA or shareholder return. And if you had a background in engineering or operations you might suggest projects delivered Read More...