What is productivity? What is efficiency? What are the differences between these two concepts? Productivity and efficiency are major concepts when talking about business and entrepreneurship. However, most people tend to confuse these two terms regularly.

To answer these question we first must understand the concepts relying behind Productivity and Efficiency.



What is productivity?

Productivity can be measured by output during a certain period. For example, if a drop shipping companies produces 1.000 units in one day and 1,500 units on the second day, we could be saying that the productive has been increase a 50% in one day. However, productivity does not measure the input or the resources needed to achieve that amount of productivity. In other words, it would be possible that on our second day the company hired new employees and bought new machinery. These two new inputs would not be reflected in the concept of productivity, but only gross production is taken into account.

Productivity can also be referred to sales. The more sales during one period, the higher the productivity of one salesman is. For example, imagine Anna owns a small store in AliExpress. On the first week, she sold over $10,000 dollars. However, on the second week she sold less than $5,000. This means that Anna’s productivity has been lowered by 50% in only one week. To understand the reasons or to evaluate Anna’s performance, we should instead measure her efficiency.

What is efficiency?

Efficiency is a way to measure the quality of the work of a single person or company, or to measure the results of the machinery or inputs in a production process. In other words, it measures the amount of production a single resource can achieve at a certain time. Whereas productivity is used to measure the total production of all the assets in one period, efficiency is used to measure the productivity of one single asset.

For example, in our first example, the company had an increase of 500 units during the second period, showing an increase of productivity of 50%. However, imagine that company had hired 100% more employees. How would its efficiency look like? It is very possible that this company increased the production 50% by rising production costs 100%. In this case, the company would be highly inefficient, or, in other words, would be wasting a lot of resources to achieve certain amount of production.

Low efficiency would mean, then, that the same amount of production can be achieved by less resources, showing that we are wasting capital, time or efforts to achieve our objectives. Likewise, a low productivity level might show that the input or assets are not enough and that the company might need to increase its labor, machinery or capital.

Conclusion

Both concepts will help your company to measure the quality of any input you use for your t shirt drop shipping production. However, productivity will not take into account the real values of the production, whereas the efficiency will take the value of the inputs when measuring the production. Efficiency is a far much better measuring method for smaller companies, whereas productivity is more important for bigger companies.