Which is your problem - Marketing or Capacity?
A few years ago, a business theorist wrote an interesting book. It was particularly unusual because the book was a novel rather than non-fiction. The book was about a factory manager and is called “The Goal” (by Eliyahu Goldratt).
This book outlines a number of ideas in business organisation, particularly in manufacturing.
One of the key ideas is called “the theory of constraints” and deals with bottlenecks in factory assembly lines.
However, it is relevant to all types of business.
But, before I explain how it is relevant to you, I’m going to explain it in terms of an assembly line.
Imagine a factory makes one product and that product goes through three steps of production (A, B and C) that turn the raw materials into the finished product.
These three steps have the following capacities:
A: 100 units per day
B: 60 units per day
C: 80 units per day
Now, it should be obvious that, as things stand, the most units the factory can make in a day is 60.
In fact, if capacity was:
A: 1,000 units per day
B: 60 units per day
C: 800 units per day
It would still have a production limit of 60 units per day.
So, there’s no point in increasing the capacity of A or C unless you manage to increase the capacity of B.
B is the bottleneck (or, as Goldratt would call it, the “constraint”).
Taking this idea and applying it to business in general, there tends to be two steps in the “assembly line”.
There’s “production capacity” and there’s “market demand”.
If you can serve 30 clients a month, but you’ve only got 20, then market demand is your “constraint”.
On the other hand, if you can serve 30 clients a month, and you have 40 who want your service, then production capacity is your “constraint”.
If you have a marketing bottleneck, then the solution is effective marketing. And pretty much any form of marketing is effective when done well in the right circumstances.
The key is “done well” and in the “right circumstances”. Knowing which form of marketing to use and how to use it for maximum returns is going decide your results.
If you’ve got a marketing constraint and you’re not sure how to bring in more clients, click here to learn how a strategic marketing approach could work for you.
However, if you’ve got a production bottleneck, then that’s a different problem altogether.
One obvious solution is to increase capacity by bringing in extra staff or contracting the work out.
However, if you can’t find the right people to handle the work, or you don’t want to take on people, there are a couple of things you can do to make more money from your current production capacity:
Firstly, you can increase your prices. You’ll make more per hour and you’ll probably find you can increase your prices and still have more business than you can handle.
Secondly, if you offer different products, you’ll find that some of them give you higher returns for your time. It makes sense for you to focus on the most profitable products. Doing this will get you a higher return for your time without doing more work.
P.S. To receive a free ebook which explains how to increase your profits without needing to find extra clients, click here.
Steve Gibson Consulting, Edinburgh 2006