So far in this year-long series to help you be better prepared for the 2022 holiday season we have talked about how to:
Start the change process – Jan
Use metrics like a football coach – Feb
Start getting control of your business – Mar
In this blog, we will continue talking about how to control your business. In March we said you were either in one of two modes:
- You have months of backlog and need more capacity now, or
- You have significant production capacity that isn’t being used and you need more sales now.
We ran a series of articles (SRG Dec 2020 to May 2021) that talk specifically about what to do if your shop is overloaded. This month we will focus on what to do if your shop isn’t full.
If you have production capacity that isn’t being used, then you aren’t making all the money you can make.
You have invested in a building, machinery, and people and you aren’t getting the full utilization of those resources. The return on your investment is lower than it should be.
Some shop owners like having excess capacity in their shops. I hear those owners say they would rather have a ‘sales problem’ than a ‘production problem’. They think having this excess capacity allows them to respond quickly to a customer request and to do so without much stress. After all, they aren’t currently using all their people and equipment, so they think there is little impact from dropping a last-minute order into the schedule.
This is frequently inaccurate. If a shop owner thinks he/she has available capacity, then there is less urgency to replace an employee that leaves. After all we have more than we need, right? The same is true for machine that is down or a hand tool that breaks. There is little urgency to address those issues.
This lack of urgency creates complacency. It removes the drive to improve performance. The result is a shop that thinks it has 20% available capacity really has 40% to 50% available capacity. Can you afford to only utilize half of your investment? If you see your business as a vehicle to get you where you want to go in life, using only half your investment means it will take you much longer to reach your exit strategy goal.
Whether you currently have unused production capacity or you foresee having it in the near future (due to economic cycles), you need a plan to increase sales.
If you need to immediately increase sales, running a promotion is the easiest solution. One of the most effective ways to have a promotion generate quick sales is to use a comprehensive social media campaign. For this to work, you need to make sure the social media look and feel matches that of your website. You need to set a budget for how much you plan to spend on Facebook ads and Google ads. Your website SEO needs to be optimized and it needs to have certain critical content.
Remember to include video. I continue to be amazed at the stories I hear about companies using TikTok to showcase products. Photos are great, but people love seeing your process in action.
However, if you are one of those companies that runs a different promotion every month, then you may have a problem. When you do this, you are simply offering product-at-a-price. You are stuck playing the me-too price game – a game that is very difficult to win. There is always a larger competitor who can use his/her economies of scale to beat your price or there are a dozen smaller competitors with less overhead who can also beat your price. If you are playing the price game, your business is likely struggling.
So how do you stop playing the price game?
When everyone offers pretty much the same products, it may seem that the only thing left to leverage is price. Some shop owners will thump their chests and proclaim, “we work hard to build a relationship with our customers”. Those relationships are great – until the next guy or gal comes along, puts in the time to build that same relationship, and then sweetens the deal with a new product line or a slightly better price. Strong customer relationships are essential, but they are not a guarantee of future business.
The best way to build a competitive edge in your market is to have a sound marketing strategy – one that is built not on products or price or having the latest equipment but is based on how well you understand your customers’ problems and how well you help them solve those problems.
A strong market identity and marketing message shows customers why they should buy from you at your price instead of buying from your competitor at a lower price.
This message focuses on the customer, the problems the customer has, and how you help the customer solve those problems.
Too many companies make the mistake of playing the role of ‘hero’ to their customers. Instead, making the customer the ‘hero’ in their story and showing how you help them overcome their problems, builds a stronger relationship with the customer, and clearly shows you can help them. This approach builds clear credibility for the fabricator.
A sound marketing strategy is essential for throttling sales demand to keep your shop full, but not overloaded. The economy ebbs and flows. Competitors come and go. Styles constantly change and the hottest colors this year are the duds next year. The ability to throttle sales demand allows you to fill up your shop when it has unused capacity or to keep your shop from becoming overloaded when demand is high.
Throttling sales demand against available production capacity allows you to be in control of your business.
This level of control is a big part of you running your business instead of it running you.
Ed Young is a seasoned manufacturing manager and business coach who has helped hundreds of companies of all sizes. If you would like a free assessment of your marketing strategy, contact Ed at Ed@FabricatorsCoach.com or 864-328-6231.
[This article was published in the April 2022 Issue of the Slippery Rock Gazette, find it at: https://www.slipperyrockgazette.net/index.cfm/pageId/4549/Would%20You%20Rather%20Have%20a%20Sales%20Problem%20or%20a%20Production%20Problem%3F%20/ ]