Operational Efficiency: Metrics, Examples & Tips (2026)

Running your company can feel like a never-ending journey toward a more efficient version of yourself. You’re constantly thinking about how to do more with less and build that finely tuned tomorrow. It’s this spirit that keeps small businesses afloat in today’s hyper-competitive marketplace.

Operational efficiency is the deciding factor between a business that scales and one that stalls. A struggling business drowns in complexity, and a thriving one creates processes that improve what matters most.

Steven Gmelin, vice president of digital sales and strategy at ALOHA, and Chad Stark, CEO of STARK carpet, understand how operational efficiency impacts their business. 

“I look at operational efficiency as a challenge and a mandate to never be fully satisfied with the current state of the business,” Steven says.

That mandate helped Aloha hit $100 million in revenue in 2024. Let’s explore the substantial benefits of operational efficiency, and learn strategies to improve efficiency in your own venture.

Running your company can feel like a never-ending journey toward a more efficient version of yourself. You’re constantly thinking about how to do more with less and build that finely tuned tomorrow. It’s this spirit that keeps small businesses afloat in today’s hyper-competitive marketplace.

Operational efficiency is the deciding factor between a business that scales and one that stalls. A struggling business drowns in complexity, and a thriving one creates processes that improve what matters most.

Steven Gmelin, vice president of digital sales and strategy at ALOHA, and Chad Stark, CEO of STARK carpet, understand how operational efficiency impacts their business. 

“I look at operational efficiency as a challenge and a mandate to never be fully satisfied with the current state of the business,” Steven says.

That mandate helped Aloha hit $100 million in revenue in 2024. Let’s explore the substantial benefits of operational efficiency, and learn strategies to improve efficiency in your own venture.

What is operational efficiency?

Operational efficiency refers to the discipline of doing more with what you have. It tracks how effectively a company turns operating costs into revenue with the fewest resources possible. When you eliminate waste and streamline daily tasks, you build a more profitable business primed for growth. 

Operational efficiency vs. operational effectiveness

Broadly speaking, efficiency and effectiveness are often used interchangeably, but they mean different things for your business:

• Operational efficiency is about doing things right. You’re looking to minimize waste, time, and resources.
• Operational effectiveness is doing the right things, such as achieving business goals like revenue growth or customer retention. 

For an ecommerce brand, operational efficiency could mean optimizing last-mile delivery, which eats up more than 50% of logistics spend, to reduce cost per order. Effectiveness would mean refining the mobile checkout experience with Shop Pay to capture holiday shoppers buying via smartphone. 

Here’s a quick table to highlight the differences:

Understanding operational cost efficiency

Operational cost efficiency is just a measure of how hard your money works for you. It doesn’t focus solely on slashing budgets, but looks at two approaches to improve the ratio of what you spend and what you ship:

• Cost reduction. This pathway involves lowering your input costs. For example, with B2C pick-and-pack fees rising to an average of $3.18 in 2024, retailers are offsetting inflation through warehouse robotics, which can cut fulfillment costs by 25% and optimize the returns process.
• Revenue increase. On the flip side, this path involves increasing your yield. With cart abandonment rates near 70%, fixing your checkout can close more sales using your existing infrastructure. This spreads your fixed operating costs over more revenue and lowers your cost per dollar earned. 

Efficiency vs. productivity

Efficiency and productivity are often thought of as synonyms, but there’s a significant difference between the two. 

“Productivity is how much you get done—output,” Chad says. “Efficiency is doing that work in the best possible way; less time, less effort, and fewer resources. You can be productive but not efficient if you’re wasting resources.” In the long run, efficient productivity helps you increase your margins and attain profitability.

Benefits of operational efficiency

Operational efficiency can considerably benefit nearly any sector or function of a business. “When you’re efficient, you cut costs, improve product quality, and stay agile to market changes,” Chad says. “It also boosts team morale by eliminating unnecessary tasks. Ultimately, it drives growth and gives you a competitive edge.”

Specifically, operational efficiency can help you:

• Save time. Higher operational efficiency cuts the time spent by workers on activities that don’t add value to the business and reduces lead times by improving your supply chain management. For example, automating inventory updates cuts hours of manual data entry and frees your team up to get orders out the door faster. 
• Reduce costs. A focus on operational efficiency can reduce regular costs and help you identify and eliminate extraneous costs. Say your stock tracking is relatively poor, you might upgrade your system and pay less for emergency rush shipping due to missed shipments. 
• Clarify internal business processes. Better internal messaging on how the business functions can lead to quicker identification and resolution of problem areas—and fewer instances of human error. When workflows are documented clearly, even a new hire can handle a complex return without needing a manager to step in. 
• Increase satisfaction. Higher-quality products and services delivered in a timely manner can improve customer satisfaction, while eliminating fruitless activities and conflicting messaging can boost employee morale. Customers get their packages on time, and employees stop feeling burnt out by busy work that doesn’t move the needle.
• Improve adaptability. An efficient business can quickly adapt to new challenges and growth opportunities. If a product goes viral overnight, a streamlined retail operation can scale fulfillment to capture the sales. A disorganized one would crash under the pressure. 

Operational efficiency metrics

The operational efficiency ratio is a tangible metric for business owners to precisely measure business efficiency by comparing profit margins against the entire business’s operating costs.

Operating costs include both costs of goods sold (COGS) and operating expenses (OPEX). It adds OPEX to COGS, then divides that number by net sales. 

The formula is: Operational Efficiency Rate = [(OPEX + COGS) / Net Sales] x 100

The resulting number, expressed as a percentage, indicates the portion of net sales absorbed by costs. That rate can be used to gauge operational efficiency when compared against industry benchmarks or a business’s own targets and past performance.

In purely mathematical terms, reducing operating costs while increasing net sales will increase operational efficiency. The following key performance indicators (KPIs) help you understand where you are losing money, so you know exactly what to fix.

Revenue per employee

What it is: A measure of the average revenue generated by each individual staff member. 

Why it’s important: Indicates workforce productivity. If the number is high, your team is leveraging resources effectively to drive sales. If it’s low, you could be overstaffed or bogged down by tasks that don’t generate revenue. 

Formula: Revenue Per Employee = Net Sales / Average Number of Full-Time Employees

Operating margin

What it is: The amount of profit you make on each dollar of sales after COGS and operating expenses, but before paying taxes or interest.

Why it’s important: It shows the profitability of your business activities. If operating margin is thin, your business model might be unsustainable, regardless of how much you sell.

Formula: Operating Margin = (Operating Income / Net Sales) x 100

Return on assets (ROA)

What it is: Shows how effectively management uses assets like inventory, equipment, and cash to generate profit. 

Why it’s important: It shows if you’re getting value from your investments. A low ROA suggests you have expensive resources, like a huge warehouse or fancy machinery, that don’t generate enough income to justify their cost. 

Formula: ROA = (Net Income / Average Total Assets) x 100

Gross profit margin

What it is: A business metric focused on the operational efficiency of your production or procurement process, ignoring overhead expenses like rent or office salaries.

Why it’s important: It acts as a check on your pricing strategy. If this gross profit margin is low, your product costs are too high, or you aren’t charging enough to cover them.

Formula: Gross Profit Margin = [(Net Sales - COGS) / Net Sales] x 100

Capacity utilization rate

What it is: A percentage that measures how much of your potential output you’re using versus what you could produce if running at full power. 

Why it’s important: It uncovers waste and strain. A low rate means you are paying for a facility you aren’t using. A rate near 100% means you are maxed out and might need to expand.

Formula: Capacity Utilization Rate = (Actual Output / Maximum Potential Output) x 100

Overall equipment effectiveness (OEE)

What it is: The gold standard for manufacturing, which combines availability, performance, and quality. 

Why it’s important: It helps explain why you aren’t producing as much as you should. OEE tells you if you’re losing money to machine breakdowns, slow production cycles, or wasted materials. 

Formula: OEE = Availability x Performance x Quality. Where:

• Availability = Run Time / Planned Production Time
• Performance = (Ideal Cycle Time x Total Count) ÷ Run Time
• Quality = Good Count / Total Count

Operational efficiency examples

It’s one thing to calculate a ratio, but it’s another to see how operational efficiency plays out in the real world. Whether you manage a warehouse or run marketing for an ecommerce brand, there are always ways to tighten up operations.

Here are seven operational efficiency examples to help you reduce waste and optimize performance. 

Automation efficiency

Intelligent automation with robotics and AI is taking over areas like fulfillment. In practice, autonomous robots are moving inventory through the warehouse instead of workers walking miles of aisles. It drastically cuts labor hours per unit, boosts throughput, and reduces human error.

In the back office, companies are replacing custom-coded infrastructure with automated platforms that remove technical bottlenecks and standardize workflows. NZXT, a leader in PC gaming hardware, realized its complex custom website was creating operational drag. By migrating to Shopify to simplify its tech stack, NZXT unlocked more than $3 million in total cost savings. Even better, it slashed order fulfillment times from 10 days to less than two days by streamlining its inventory and build processes.

Employee training 

The rise of AI is giving way to new training programs on how to use these advanced tools efficiently. With 74% of workers using AI but only 33% receiving formal training, businesses are rolling out micro-learning modules on AI prompting. 

Unifying your systems is another example of efficiency here. When employees use tools that are easy and intuitive, training is faster and focused on value-added tasks. 

Renard’s Cheese, an artisan cheese maker, was struggling to train staff across four separate systems for their bistro, retail store, and website. After consolidating everything onto Shopify POS, the company reduced retail staff training time by 25%, letting the team use their energy on customer service rather than wrestling with disconnected software. 

Energy and resource efficiency

Facilities are always looking for strategies to reduce energy costs, water usage, and material waste within their buildings and operations. Something as simple as retrofitting distribution centers with LED lighting and optimizing HVAC systems can boost energy efficiency, reduce overhead expenses, and improve profitability. 

According to ENERGY STAR, high-performing buildings save roughly 53¢ per square foot in utilities and 60¢ per square foot in operations and maintenance costs annually compared to typical buildings that don’t prioritize energy efficiency.

Marketing efficiency 

Customers love personalized shopping experiences, but for brands, achieving them is difficult given the amount of data and automation required. You have to tailor every part of the customer journey, from discovery to delivery, based on their preferences and behaviors. However, achieving marketing personalization at scale can drive higher average order value (AOV) and conversion rates, all without spending more on ads.

Venus et Fleur, a luxury floral brand, integrated its online and offline data to create a single customer view. By targeting high-intent buyers through the Shop App, it achieved a 15% higher AOV compared to their website. Also, by personalizing the checkout with a custom delivery calendar, it reduced cart abandonment by 12%, turning lost traffic into revenue.

Strategic partnerships 

Partnerships are key to any successful business operation. The type of partnership you’ll make depends on industry, budget, customer—too many variables to mention in one paragraph. As it relates to retail productivity, one of the smartest partnerships you can make is with a third-party logistics provider, or 3PL.

These companies help you improve order accuracy and utilize denser delivery routes to lower cost per order. With 84% of ecommerce businesses reporting rising last-mile costs, moving D2C fulfillment to a 3PL can blunt that inflation. Leading partners often hit 98% order-picking accuracy, so you don’t waste money fixing shipping errors.

Process efficiency 

Combining fragmented systems, like a separate online and in-store POS platform, into one unified engine eliminates data silos and maintenance fees. To keep disparate systems in sync, IT teams are constantly patching software and not improving your tech stack.

It doesn’t matter whether you’re in ecommerce or manufacturing; unifying your retail and ecommerce operations can increase operational efficiency. EVEREVE, a fashion retailer with more than 100 stores, was bogged down by custom integrations that crashed during peak sales events. 

Unifying its retail and online operations onto Shopify, EVEREVE turned a process nightmare into a competitive advantage. The result was a 20% increase in online conversion rates and a record-breaking sales day with 36% higher revenue.

Administrative efficiency 

The future of finance and procurement is digital. E-invoicing, touchless matching, and automated payment systems shorten cycle times and reduce processing costs. 

And the gains are noticeable: A 2024 AP survey found that 52% of AP professionals spent more than 10 hours a week processing invoices, down from 62% in the previous year. Moreover, the manual entry of invoices into ERP/accounting software decreased to 60%, down from 85% in 2023. 

11 tips to improve operational efficiency

1. Understand the state of affairs
2. Optimize resource allocation
3. Automate business processes and routine tasks
4. Outsource to experts
5. Standardize and document business processes
6. Invest in employee training and development
7. Streamline communication
8. Analyze performance metrics
9. Embrace flexible work models
10. Prune redundancies
11. Reassess and continually improve

There are a number of ways your business’s leadership team can improve operational efficiency. Here are a few strategies for adopting an operational efficiency mindset:

1. Understand the state of affairs

Chad recommends mapping out your workflows to spot bottlenecks, but you’ll want a structured approach to do it effectively. It all starts with business process mapping, which documents every step of a process to expose hidden inefficiencies. 

Sketch your processes out with visual tools like flowcharts or value stream maps to understand what’s working, what isn’t, and where you’re wasting the most time and resources.

2. Optimize resource allocation

Once you’ve got a sense of the immediate efficiency problems, you can start assessing how you’re using resources like time, labor, and materials. You can dial back resources spent on low-value tasks and reallocate some to high-impact or high-return areas. 

3. Automate business processes and routine tasks

Automating the boring stuff frees your employees to focus on the creative, high-value work only humans can do. Tools like AI-driven workflows are great for this, handling everything from data entry to basic customer chats.

However, be careful not to just pile on more business apps. Recent data shows that 50% of businesses are stuck using an average of 17 disconnected tools, while only 4% have platforms that are actually fully integrated.

“Most customer service inquiries are straightforward, making it possible to use automation, self-service tools, and generative AI-assisted responses,” Steven explains. “Of course, this doesn’t solve 100% of CX inquiries, but it gets the majority of the way there, which has been a huge unlock for our team.”

When you’re shopping for automation tools, ask the hard questions: 

• Does this talk to my current systems? 
• Will it simplify my day or just add another login to manage? 

You want a solution that connects your workflow, not one that fragments it further. Look for platforms with built-in AI features rather than adding new subscriptions. Shopify Magic, for instance, is embedded directly into your admin, allowing you to generate product descriptions, edit product photos, and draft email campaigns without ever leaving your dashboard.

4. Outsource to experts

Are there certain tasks your team is performing in-house that are taking up more time than is necessary? It might be cheaper to outsource that work to professional service firms. Experts like accountants, marketing agencies, and social media strategists are specialists in their fields, and they often can work more efficiently than an in-house team (and at a lower cost).

5. Standardize and document business processes

Mapping out your business operations not only shows you the inefficient processes, but the efficient ones too. Standardize these processes by documenting standard operating procedures (SOPs). This will help to reduce errors, create consistency across teams, better train new employees, and ensure continuity if key team members are unavailable.

6. Invest in employee training and development

Skilled employees, confident in their training, make more operationally efficient decisions—and they’re empowered to identify inefficiencies themselves. Regularly updating training programs and encouraging a culture of learning can go a long way toward improving team agility and retail operational efficiency.

7. Streamline communication

Clear, concise communication between teams, and between managers and employees, minimizes misunderstandings and reduces time wasted on clarifications. Workplace instant messaging tools and calendar-integrated video conferencing applications can keep communication organized and accessible to all involved.

8. Analyze performance metrics

After mapping out your operations, identifying bottlenecks, and formulating process improvements, you’re going to find yourself with a lot of new data on your hands. Use real-time data to identify more inefficiencies and track progress while mitigating them.

Keep an eye on employee productivity metrics and time per task to spot bottlenecks instantly. Monitor quality control metrics to catch defects before they ship, and watch cost per unit and purchase-to-delivery cycle time to protect your margins from moment to moment.

“Early stage companies operate on assumptions about expectations and focus on maximizing efforts accordingly,” Steven explains. “As a company matures and scales, those assumptions are replaced with vast amounts of data and customer and employee feedback. Listening and filtering through the noise will help you understand what the real problems are to solve and what will drive the most value.”

9. Embrace flexible work models

Hybrid or flexible work environments can improve productivity, reduce overhead, and improve employee satisfaction, leading to better performance and greater operational efficiency. At a minimum, remote or hybrid employees can devote the time they would have otherwise spent commuting or settling into a day at the office to high-value tasks.

10. Prune redundancies

Identify duplicate tasks or processes within departments or across teams, and work to consolidate them to use your resources wisely. Cross-team collaboration—such as regular check-in meetings—can uncover areas where similar tasks are being performed more than once and where combined efforts might save time and money.

11. Reassess and continually improve

“Operational efficiency is the opportunity to constantly iterate, adjust, retool, and reimagine the way you do something,” Steven says. Business circumstances can, and often do, change—sometimes drastically. That’s why it’s important to prioritize continuous improvement.

Reactive crisis management, where you wait for disasters to make change, is more expensive to operate. Commit to a systematic reassessment and dive into your data and workflows, even when things seem fine. That way, you can tackle any drags on your system ahead of time.