Economic Concepts

Capacity Utilization

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An empty apartment in a building.  It could be rented, but it remains vacant.  The masonry crew that takes Friday off rather than do one more driveway.  One more Ram 2500 rolling off the line at the close of the day.

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While there is plenty of math to it, the concept of capacity utilization is crucial to the success of any business.  Think about it this way.  If a haircut is $10 and a barber can do as many as 100 per week, that potential revenue base is $1,000.  If the barber knocks off early or reduces hours, the loss of revenue will greatly affect the bottom line.  The table on the right show the various alternatives.  This math applies to a five-person construction company as much as it does to Boeing.

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What is your capacity?  How close are you to reaching 100% utilization?  What would need to be done to operate over capacity in the short-term?  Have you done the math on how much falls to your bottom line if that extra revenue pours in?

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The results of putting your full capacity to use will likely shock you.

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