High PIT is a price advantage, as it has a better results/costs ratio
Dreams Come True. At a reasonable price.
Vladimir Kolechitsky[1]
This is the second of the advantages that was stated earlier in the article “The benefits of high productivity in intellectual work“
The question is: Why is high PIT an advantage in price, since it is the best results/costs ratio?
Having received the answer, we will understand what the second benefit that high PIT gives us is, as well as why we need to achieve it.
In the article “Labor productivity“I pointed out that “labor productivity is an index that measures the result of labor relative to labor costs, that is, it is always the ratio of labor results/labor costs.” There I gave the following formula:
Labor productivity= (Labor results)/(Labor costs)
The formula shows that the smaller the denominator is “labor costs” and the larger the numerator “labor results”, the higher the labor productivity.
Hence, the highest possible labor productivity always means the lowest possible labor costs and the highest possible labor results.
If you take this formula and turn it around. Swap the numerator and denominator. Then take a monetary value, i.e., an amount in money, as the numerator as an indicator of “labor costs,” and take a natural value as the denominator as an indicator of “labor results,” for example, the volume of production in pieces, then we get a cost indicator unit of production (not complete, but only in its essential part – in terms of “labor costs”).
From the inverted formula it will follow that the smaller the numerator “labor costs” (in rubles), and the larger the denominator “labor results” (in pieces), the lower the cost per unit of production, rubles/piece.
What is the cost per unit of production? This is a component of its price. The lower the cost, the higher the profit margin in the unit price of this very product. And a high rate of profit allows you to either reduce the price, making it more profitable than competitors, or earn more gross profit at a constant price, which can be further invested in the business and/or distributed in favor of the business owners.
Let’s take into account that in “labor costs” the lion’s share belongs to the costs of intellectual labor, which I wrote about in the article “The share of intellectual work is growing”
It turns out that high productivity of intellectual labor always means a lower cost per unit of production in terms of “costs of intellectual labor,” that is, a higher rate of profit, which gives an advantage over competitors in price.
Let's summarize.
From the labor productivity formula, the highest possible labor productivity always means the lowest possible labor costs and the highest possible labor results. At the same time, the lower the labor costs (in rubles), and the greater the results of labor (in natural values), the lower the cost per unit of production. IN “labor costs” the lion's share belongs to the costs of intellectual work. Hence, high productivity of intellectual labor is always a lower cost per unit of production in part “costs of intellectual work”that is, a higher rate of profit, which gives an advantage over competitors in price.
The full version of the article is available in my book “Wonderful Problems, or Kozyrnaya “ACE” of Motaev!”
With respect to you and your business, Motaev Alexander
You can discuss this and other blog articles in our Telegram channel “Task flow management”.
[1] Vladimir Kolechitsky (year of birth: 1938, age: 83) – journalist, writer, editor, writer-aphorist. Member of the ICA since the 80s
