Shopify blog
Operational efficiency is how effectively a business uses time, labor, technology, and other resources to produce goods or deliver services. It can be measured through costs, output, speed, and quality.
Adding new technology to daily operations, and measuring its success is a challenge for many businesses. In PwC’s 2026 Digital Trends in Operations Survey, 72% of US operations and supply chain leaders said automating operations was a top AI investment priority. But 89% said their technology investments hadn’t fully delivered the results they expected.
This guide covers how to measure operational efficiency and improve automation workflows for your business.
What is operational efficiency?
Operational efficiency measures how well a business uses its resources. It focuses on lowering costs and increasing productivity without reducing output quality. This helps a business deliver more value to customers with the same or fewer resources.
Operational efficiency vs. operational effectiveness
Operational efficiency and operational effectiveness measure different parts of business performance.
- Operational efficiency focuses on how work gets done. It aims to reduce the resources needed to complete a process.
- Operational effectiveness focuses on whether that work supports a business goal.
For example, operational efficiency for an ecommerce brand could mean optimizing last-mile delivery to reduce cost per order. Effectiveness would mean refining the mobile checkout experience with Shop Pay to capture holiday shoppers buying via smartphone.
| Category | Operational efficiency | Operational effectiveness |
|---|---|---|
| Question | Are resources being used well? | Is the business working toward the right goal? |
| Focus | Cost and resource use | Business results |
| Goal | Reduce waste | Increase revenue or retention |
| Example | Automate warehouse picking | Personalize product recommendations |
Understanding operational cost efficiency
Operational cost efficiency measures how much output a business gets from its operating expenses. A business can improve it with two methods:
- Reduce costs. This means lowering the cost of completing the same work.
- Increase revenue. This means generating more sales from existing systems and fixed costs.
Efficiency vs. productivity
Productivity measures how much work gets completed. Efficiency measures the resources used to complete that work.
“Productivity is how much you get done—output,” Chad Stark, CEO of Stark Carpet, says. “Efficiency is doing that work in the best possible way: less time, effort, and fewer resources. You can be productive but not efficient if you’re wasting resources.”
For example, a warehouse may ship more orders after adding overtime. Productivity increases, but efficiency may fall if the labor cost per order also increases.
Operational efficiency metrics
Operational efficiency metrics track how a business uses its labor, assets, time, and operating costs. Measure progress by comparing results with a baseline from a consistent period. Track changes over time, or compare performance with an industry benchmark.
The US Bureau of Labor Statistics reports that nonfarm business productivity increased 0.3% in the first quarter of 2026. Output increased 1%, while hours worked increased 0.7%. BLS measures labor productivity by dividing real output by hours worked.
Regular reviews make it easier to identify changes in costs and output. In a 2025 Shopify survey, 69% of store owners said they review their finances at least weekly.
| Metric | Formula | What it measures |
|---|---|---|
| Operating ratio | [(COGS + Operating expenses) ÷ Net sales] × 100 | The share of sales used to cover operating costs |
| Revenue per employee | Total revenue ÷ Number of employees | Revenue generated per employee |
| Operating margin | (Operating income ÷ Revenue) x 100 | Profit from core operations |
| Return on assets | (Net income ÷ Average total assets) × 100 | Profit generated from business assets |
| Gross profit margin | [(Revenue − COGS) ÷ Revenue] x 100 | Profit remaining after product costs |
| Capacity utilization rate | (Actual output ÷ Maximum potential output) × 100 | How much production capacity is being used |
| Overall equipment effectiveness | Availability x Performance x Quality | Equipment productivity |
| Cycle time | Net processing time / Units completed | Time required to complete one unit |
| Resource utilization rate | (Productive time / Available time) x 100 | The share of available resources used for productive work |
Operating ratio
What it is: The percentage of net sales used to cover COGS and operating expenses.
Why it matters: A lower operating ratio means costs take up a smaller share of sales. Compare the result with previous periods because typical ratios vary by industry.
Formula: Operating ratio = [(COGS + Operating expenses) / Net sales] x 100
Revenue per employee
What it is: The average revenue generated for each employee.
Why it matters: It tracks workforce productivity. Changes can show whether revenue is growing at the same rate as staffing.
Formula: Revenue per employee = Total revenue / Number of employees
Operating margin
What it is: The percentage of revenue left after COGS and operating expenses. It excludes interest and taxes.
Why it matters: It measures the profitability of retail operations. Tracking it over time shows whether operating costs are rising faster than sales.
Formula: Operating margin = (Operating income / Revenue) x 100
Return on assets
What it is: The profit a business generates from its assets.
Why it matters: It measures how effectively assets produce income. A falling ROA can indicate that asset growth is not producing a similar increase in profit.
Formula: Return on assets = (Net income / Average total assets) x 100
Gross profit margin
What it is: The percentage of revenue remaining after COGS. It does not include operating expenses.
Why it matters: It tracks the relationship between product costs and pricing. A lower margin means COGS is taking up more revenue.
Formula: Gross profit margin = [(Revenue − COGS) / Revenue] x 100
Capacity utilization rate
What it is: The percentage of maximum production capacity being used.
Why it matters: A low rate can indicate unrealized potential. A consistently high rate can suggest that the business is nearing its current production limit.
Formula: Capacity utilization rate = (Actual output / Maximum potential output) x 100
Overall equipment effectiveness
What it is: A manufacturing metric that combines equipment availability, production speed, and output quality.
Why it matters: It helps identify whether lost output comes from downtime, slower production, or defects.
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
Cycle time
What it is: The average time required to complete one unit or process. This doesn’t include downtime or breaks.
Why it matters: It helps track production speed and identify delays. Compare cycle time for the same process under similar conditions.
Formula: Cycle time = Net processing time / Units completed
Resource utilization rate
What it is: The percentage of available time spent on productive work.
Why it matters: It shows how much available capacity is being used. The definition of productive time depends on the role or resource being measured.
Formula: Resource utilization rate = (Productive time / Total available time) x 100
Benefits of operational efficiency
Improving operational efficiency can increase profits and make day-to-day work more consistent. In a 2025 Shopify survey,* 42% of store owners said ensuring profitability was their top business goal.
“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.”
Operational efficiency can help a business:
- Save time. Efficient workflows reduce time spent on manual tasks. For example, automated inventory updates can speed up order processing.
- Reduce costs. Lower labor and shipping costs can improve the operating ratio and protect gross margin. This includes avoidable costs such as overtime or rush delivery fees.
- Clarify internal processes. Documented workflows make tasks easier to complete consistently. They can also reduce errors and help employees work with less supervision.
- Increase satisfaction. Faster service and consistent product quality can improve the customer experience. Removing repetitive work can also make daily tasks easier for employees.
- Improve adaptability. Efficient processes make it easier to respond to changes in demand. A retailer with a reliable fulfillment process can handle a sudden increase in orders without disrupting normal operations.
Operational efficiency examples
Operational efficiency examples are clearer when they connect an input to a process change and a measurable result. For example, a store owner might implement an inventory system to automate stock updates. The result could be fewer stockouts or fewer labor hours per order.
Review these examples to see operational efficiency in action.
Automation and system consolidation
Automation works best when all your commerce systems share data. This removes manual handoffs and moves orders through fulfillment faster.
Gaming PC company NZXT focused on order fulfillment and platform management. When their custom-built configurator turned into an operational bottleneck, they discontinued it and leaned on Shopify’s infrastructure to streamline tasks.
The company reported more than $3 million in total cost savings and cut fulfillment time from as long as 10 days to under two days.
Employee training and system adoption
Employee training can affect how quickly a new system becomes part of daily work. In Writer’s 2026 AI adoption survey, frequent AI users reported saving nearly nine hours per week. However, only 29% of executives reported significant returns from generative AI.
In a retail setting, system consolidation reduces the number of tools employees have to learn. For example, Renard’s Cheesereplaced four separate systems with Shopify POS. Staff no longer had to learn different tools for each part of the business. Retail training time fell by 25%.
Energy and resource efficiency
Energy and resource efficiency starts with a baseline for things like electricity use, water costs, and material waste. The process change could involve better controls or more efficient equipment. The result is measured through lower consumption and operating costs.
Updating a building’s climate settings, lighting, and HVAC systems, or equipment that creates more from the same amount of materials, can have the desired effect.
Marketing efficiency and data quality
Marketing efficiency depends on accurate customer data. The process involves targeting buyers or personalizing the checkout experience. A unified customer record makes those changes possible, while average order value (AOV) and checkout completion provide measurable results.
Flower shop Venus et Fleurconnected its online and retail data through Shopify. The brand used that data to target Shop App customers and add a custom delivery calendar at checkout. Shop App customers had a 15% higher AOV compared to website shoppers, while abandoned checkouts fell by 12% with the calendar addition.
“Shopify has streamlined our operations by enabling us to manage all of our sales channels in one place,” says Brendan Gorman, the company’s former head of ecommerce. “The platform’s ecosystem of tools has been key in helping us maintain the quality, consistency, and personalization that define Venus et Fleur’s approach, ensuring that we can continue to scale while fulfilling our vision as a luxury omnichannel retailer.”
Fulfillment and shipping partnerships
A third-party logistics (3PL) provider can take over part or all of the fulfillment process. Businesses can improve efficiency with the 3PL’s shared warehouse infrastructure and negotiated carrier rates. The results are measured by cost per order and on-time delivery.
Store owners can compare the total cost of in-house fulfillment with a 3PL to determine which option lowers shipping costs after fees.
Process and inventory efficiency
Process efficiency improves when inventory and order data move through one system. This reduces the work required to maintain integrations and keeps stock information consistent across sales channels.
Women’s clothing brand Everevemoved its ecommerce operations and 103 stores onto Shopify. The unified platform connected its inventory, customer, and order data. The company reported a 20% year-over-year increase in online conversion after the switch, and a record sales day with 36% more revenue than its previous record.
Administrative efficiency
Administrative efficiency focuses on recurring back-office work, such as invoice processing. Electronic invoicing and automated matching reduce manual handling, which lowers processing cost and cycle time.
Ardent Partners’s 2025 accounts payable (AP) benchmark report put the average cost of processing an invoice at $9.84. Average processing time was 8.2 days. The best-performing AP teams recorded 79% lower costs and processed invoices 79% faster than other teams.
Operational efficiency tools and software
Operational efficiency software reduces manual work and centralizes operational data. Store owners use it to automate recurring tasks, compare performance with a baseline, and move orders through fulfillment with fewer handoffs.
These are common tools to have in your tech stack:
Automation tools
Shopify Flow creates rule-based workflows using triggers, conditions, and actions. A store owner might send an internal alert when a product reaches its reorder point.
Shopify Sidekick handles AI-assisted work inside the Shopify admin. It can turn a written request into a Flow workflow. Store owners can test a workflow before it goes live.
Retailers are using AI to address specific operating pressures. In NVIDIA’s 2026 retail and consumer packaged goods survey, 51% of respondents named supply chain efficiency and throughput as the top way to relieve operational pressure through AI. Capgemini Research Institute also found that organizations using AI across business operations reported an average return of 1.7 times their investment in 2025.
Measure the task before and after automation. Track time saved for administrative work. For order workflows, use a metric such as fulfillment cycle time. Stores that need more automation options can also use apps such as Hextom: Workflow Automation for scheduled tasks.
Analytics and benchmarking tools
Shopify Analytics consolidates sales and fulfillment data into a single reporting system. Store owners can compare time periods, create custom reports, and set targets for individual business metrics. This makes it easier to check whether a process change improved the operating result it was meant to address.
Start with a consistent baseline. For example, compare average fulfillment time during the four weeks before a new picking process with the four weeks after it.
Inventory, order, and fulfillment tools
Inventory software tracks stock across locations and records adjustments. Shopify store owners can review their full inventory adjustment history when investigating a stock discrepancy.
Shipping and returns are part of the same operating workflow. Stores can buy labels through Shopify and track orders as fulfillment progresses. Shopify store owners can buy FedEx return labels in the US.
Shopify POS data shows store owners can save at least 10 hours per month on inventory management.
For stores that work with multiple suppliers, Order Fulfillment Guru splits orders and sends each item to the correct supplier. It also syncs inventory between connected stores. The Shopify Fulfillment Network app also connects stores with selected 3PL providers. Store owners can manage their fulfillment workflow from the Shopify admin.
POS, ERP, and 3PL integrations
A unified POS and ecommerce platform uses the same inventory and order data across online and physical stores. This removes the need to maintain separate stock records for each sales channel.
Some larger operations use several systems. Enterprise resource planning (ERP) systems hold financial and inventory records. An order management system routes orders. A third-party logistics provider stores and ships products. Connecting these systems reduces duplicate entry and keeps order status current.
Shopify B2B connects with ERP systems through prebuilt connectors, application programming interfaces (APIs), or integration platforms. Shopify can also link with other external systems for use in customer records and product catalogs.
With the Shopify Plus plan, you can create unlimited B2B market catalogs and assign them directly to specific companies. It also includes deposit requirements, partial payments, and payment requests for individual fulfillments. These tools keep customer-specific pricing and payment rules inside the order process.
How to improve operational efficiency
Improving operational efficiency follows a repeatable process. Map the workflow and record a baseline. Automate or remove unnecessary steps. Document the new process, train staff, track performance, and review it over time.
In a 2025 Shopify survey,* 19% of store owners said they wished they had waited for profitability before scaling. Measuring costs and output before expanding can show whether growth is improving performance.
Map workflows and identify bottlenecks
Choose one process and document each step. For example, follow an order from checkout to delivery. Mark where work stops, changes hands, or requires correction.
One way to find bottlenecks is to create a value stream map, which shows how work moves from one step to the next. NIST describes it as a way to uncover waste, diagnose problems, and decide where to make changes.
Set baseline metrics and allocate resources
Record current performance before changing the process. This baseline gives you a point of comparison once the new workflow is in place.
Choose a metric that matches the problem. If fulfillment is slow, record the current fulfillment cycle time. You can then direct labor or technology toward the step causing the delay.
Review the metric after each change. A faster process is not more efficient if labor costs or error rates also increase.
Automate repetitive work with connected systems
Use automation for recurring tasks with clear rules. In the World Economic Forum’s 2025 Future of Jobs Report, executives estimated 47% of work tasks were performed mainly by people. Technology accounted for 22%, while people and technology together accounted for 30%.
Shopify Flow automates tasks across a store and connected apps. A store owner can use it to flag a high-risk order or send an alert when stock reaches a set level.
Measure the result of each automation. For example, track whether an order workflow reduces fulfillment time.
Decide what to outsource
Compare the cost and performance of in-house work with an outside provider. Outsourcing may make sense when a specialist can complete the process at a lower total cost.
Set the expected result before choosing a provider. Compare its performance with the original baseline.
Operational efficiency consultants can also review workflows and identify bottlenecks. They may recommend changes to systems, staffing, or process design.
Standardize processes and train staff
Once a revised process produces the intended result, document it in a standard operating procedure (SOP). The SOP can cover the steps, the system used, and the person responsible for the task.
Train employees using the same documented process. This reduces differences in how the work is completed and makes system adoption easier. Update the SOP when the workflow or software changes.
Improve communication and remove duplicate work
Review the points where work moves between teams. Order handoffs and inventory updates can involve several employees.
Keep the current status in a shared system. For example, a single order record prevents customer service and fulfillment teams from updating the same order separately.
Review cross-team workflows for repeated approvals or data entry. Remove the duplicate step or assign it to one team.
Reassess and continually improve
Monitor the baseline metric after the new process is in place. If performance doesn’t improve, map the workflow again and look for a new constraint.
Lean methods focus on reducing waste and maintaining the flow of customer value. The Six Sigma method focuses on finding the causes of defects and reducing process variation.
Test one change at a time and compare the result with the baseline. Keep changes that improve the selected metric without increasing costs or errors elsewhere.
*Based on a 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with two or more years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.
Operational efficiency FAQ
What is an example of operational efficiency?
An example of operational efficiency is just-in-time (JIT) inventory management. It’s a manufacturing production efficiency strategy that reduces excess stock and minimizes storage costs by receiving parts only as they are needed for production, thus reducing waste, optimizing space, and cutting costs for holding. This improves cash flow and can increase customer satisfaction by keeping sought-after products in stock.
How do you measure operational efficiency?
The operating ratio is a good metric for measuring operational efficiency: operating expenses (OPEX) plus costs of goods sold (COGS), divided by net sales. The resulting number is expressed as a percentage and reflects the share of sales used to cover operating costs.
How to achieve operational efficiency?
Operational efficiency starts with mapping a workflow and measuring current performance. Find and fix the step causing the most waste, and track the result against the baseline. Repeat this process as the business changes.
What impacts operational efficiency?
A wide array of factors, including OPEX and COGS, can impact operational efficiency. For example, your OPEX will increase if an hourly employee takes eight hours to complete a task that should only require four. Your COGS will increase if you buy raw materials from a supplier who charges a premium. Both will have an impact on your resulting operational efficiency rate.
How can operational efficiency be improved in retail businesses?
Retailers can see big gains by unifying their online and physical operations. This lets them remove data silos and house all customer data under one roof, which allows for personalized marketing campaigns and more accurate inventory tracking.
