I was recently asked about how a small business could go about determining its hourly rate. This individual was a contractor and wanted to cover their salary, their overhead and have enough room within their hourly rate to secure a profit. It’s a rather simple and straightforward process, but it does vary according to the type of small business one owns. For instance, a small consulting business would be different from a small contracting business. In the case of the contractor, they would have to account for their salary, their direct expenses attributed to the particular job or contract, their indirect expenses and their profit. The consultant might simply cover salary, overhead/indirect expenses and profit. To clarify, I’ve included simple steps to determining the hourly rates for a small business.
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How much influence do bullies have on your shop floor? For instance, are they immediately dealt with, ignored entirely, or does your management simply allow them to go day-to-day, intimidating one co-worker after another? Perhaps you’ve yet to recognize their impact. Maybe you’ve rationalized that their influence is limited. Unfortunately, reality is entirely different. In fact, your management may coddle these individuals in the hopes that by appealing to their good nature, they’ll somehow change their ways and fall in line. Unfortunately, this rarely happens. So, what’s the solution?
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Your cost of capital is everywhere. It’s in your costs to finance inventory, receivables, capital expenditures, machinery upgrades and any aspect of your business where you need to pay for future growth. In fact, an argument can easily be made that these costs are only increasing in an economy that has yet to fully recover from the last recession. Granted, interest rates are low, historically low. However, when your customers take longer to purchase product, don’t purchase as often, and then take longer to pay, then your costs increase – no matter how low your company’s borrowing costs are.
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Is there any truth to the saying that it’s “good to be lucky and lucky to be good?” If so, then what does this statement say about companies who are looking to defend their market share by holding firm on price? After all, business success can’t possibly be based on a proverbial “roll of the dice,” or can it? Well, sometimes companies only succeed when they’re willing to take calculated risks, ones that involve holding firm on price, even if the eventual outcome is lost business. Granted, it isn’t easy to hold firm. However, there are several important reasons why defending your price works.
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Every company wants more accurate sales forecasts; you purchase what you need, when you need, and most importantly, you don’t buy too much or too little. The more accurate your sales team’s forecasts are, the less of an impact your carrying costs of inventory will have on your company's bottom line. Unfortunately, we all know that sales projections can’t possibly attain 100% against actual sales. There is guaranteed to be a deviation. However, it’s more about the pursuit of perfection, than actually ever attaining that 100%. Each time your accuracy increases, your costs of inventory decrease. So, how can you improve your sales forecast accuracy?
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Every company has access to voice of customer data. Every time your company sells a product, or provides a service, it has an opportunity to gather essential information about how your company is performing. That information comes from the customer and goes directly to your sales and customer service team, or directly to your marketing department. The only real difference is how companies use these data points. I already covered how companies can use VOC data with a Kano Analysis in order to define the costs of a product upgrade. However, now I want to show how your company can use that same strategies in order to define the costs of a customer service upgrade.
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A company’s purchasing department must always decide between its monthly inventory carrying costs, and the savings that comes from placing higher volume purchases. It’s a decision they must make daily, and it’s one that is rarely easy. After all, any immediate savings in price, and lower incoming freight, is easily eroded by high monthly holding costs. This is especially the case if the company is forced to hold that inventory for longer than anticipated. All it takes is to be burnt once for a company to become apprehensive about taking advantage of any future deals. That’s why today we’ll provide some guidelines on how to decide between high hold costs, and high volume purchases. Surprisingly, there are some simple approaches to simplifying whether you should maintain your current inventory counts, or purchase more.
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I’ve written many times about the damaging effects of inventory stock outs. Regardless, I continue to come across instances where my customers believe that low inventory equals low costs. Granted, when inventory levels are low, your company isn’t burdened by the costs of financing, costs of obsolescence, costs of damage and most importantly, isn’t worried about having valuable capital tied up in inventory. However, while each of these are valid points, it’s important to understand what your company does when confronted with an inventory stock out and a customer, who needs product immediately. Well, if you're company is like most of the ones I've worked with, then you're guaranteed to encounter a number of hidden costs of low inventory.
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Is it fair to say that there is a distinct difference between a company’s value assertion and its value proposition? Or, is this nothing more than a play on words, one where both essentially mean the same thing? Well, yes and no. For most companies, these two are interchangeable. They mean the same and in essence, have the exact same purpose. However, there is a distinction, and it’s one that some companies understand completely. In fact, they use this knowledge to their advantage in order to provide a tailor-made, turnkey solution that allows them to capture business.
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Today I wanted to provide a more in-depth manufacturer’s price sheet, one that explains how to track direct material, direct labor, overhead and most importantly, how to account for profit within your product’s pricing. The reality is that not all companies have the ability to track these costs through an ERP system. As such, this sample excel sheet will allow you to track the costs of all of your raw materials, parts and labor costs in manufacturing. I’ve broken this up into four sections, with the excel sheet at the bottom of the post and an explanation of how each four of these steps work.
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There is one tool I always use when I need to explain the two main categories of inventory costs; high carrying costs and lost sales cost of inventory. This tool is not only useful when explaining these two cost drivers, but it's also useful when outlining the reasons why companies should use an inventory asset analyst, one that can find a happy medium between the needs of the company's sales department, and the objectives of its purchasing department. Most companies are well aware of carrying costs. These include the costs to hold inventory without sales. However, far too few understand lost sales costs of inventory. The following bell curve should help explain the impact of lost sales on your inventory.
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We’ve all heard those estimates about how it’s far less expensive to retain existing customers than it is to find new ones. After all, the costs of securing a new customer can be substantial, especially when you factor in your costs of securing qualified leads and your costs to convert those leads into paying customers. It's certainly something that doesn't happen overnight. However, success with customer retention ultimately comes down to adopting several simple, straightforward and proactive customer management strategies. If properly used, they can not only improve your customer retention, but they can help grow your existing customer accounts. So, what are the five pillars of success in B2B customer management?
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There are essentially two main categories of inventory costs; the first includes inventory carrying costs and the second includes lost sales. One covers the high costs of holding inventory without sufficient sales volumes, while the other itemizing the high costs of losing sales without sufficient inventory. One is easily understood in terms of its financing, while the other is less understood because companies don’t properly track the costs of losing business. Now, most companies thoroughly understand the high costs of holding inventory, but far too few ever track the high costs of not having inventory. What are these costs?
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Selling me-too product lines is always a challenge. First, there are often no differentiating factors other than price. Second, selling these products is akin to selling a commodity, one where extreme price fluctuations leads to market uncertainty. Third, there’s always the threat of a customer playing your price against you in order to lower your competitor’s bid. While it’s never fun to appeal to the lowest common denominator, selling on price is simply unavoidable when it comes to selling me-too product lines. However, one vital aspect of sales success is to make sure your salespeople maintain a sense of urgency by keeping their sales pipeline full.
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How important is it for your sales team to use proper B2B sampling techniques? Should your sales team provide your customers with free samples whenever they please? Or, should your company dictate how and when these samples should be provided? Perhaps it never occurred to you that there is a right and wrong way to provide a free sample of product to your customer. If that’s the case, don’t worry. Most of my customers give their salespeople free reign when it comes to giving customers free product. However, when it comes to B2B sales, there are some issues with how today’s salespeople give free product to customers. After all, it’s free for them, but is it free for your company?
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I’ve written many posts about how to capture lost time in a given production work cell. Whether it’s been about reducing the transit times between these cells, mitigating the delays caused by inaccurate work instructions, or using process mapping and workflow diagrams to improve how work moves from one work station to the next, we’ve pretty much covered all there is to setting up a lean work cell. However, is it really about coming up with involved processes and strategies, or is it ultimately about common sense? More importantly, isn’t success ultimately about how engaged your production employees are? it is, and it also means you must call upon them to help you set up a better work cell.
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Does the long tail of the demand curve apply to your small business and its market? Unsure of what the long tail is and how it might be used to define your company’s best sales opportunities? Most of my customers are unsure of what’s meant by the long tail of the demand curve. However, it simply says that the average emerging from a given sample is often skewed by a couple of extremely high values. It’s these deviations from the norm that end up increasing, or decreasing, the sample portion’s mean, or “average”. Now, you are probably wondering what all this has to do with your small business, your approach to market and where your company’s best sales opportunities lie. Surprisingly, this statistical distribution analysis provides invaluable insight as to where you should focus your sales team's efforts.
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How does your B2B sales team handle customer demands for lower pricing? Does your sales team try to secure customer concessions and justify a lower price for higher purchase volumes? Or do they simply give in to these customer demands and grant a lower price? It’s not uncommon for salespeople to become easily intimidated by a customer’s demand for lower pricing. However, it’s something else entirely when management starts thinking the surest way to winning business is to match the lowest possible bid. Don’t allow this to happen. Management controls the conditions of the sale. They are the gate keepers and the second line of defense when it comes to protecting your price. Your first line is your B2B sales team. Therefore, I’ve decided to come up with five reasons why you don’t have to lower your price.
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Today I thought I would put together a sample excel sheet for those who want to visualize their manufacturing downtime. This is something I use when I work directly with manufacturers. It is one thing to define the costs of lost time, but it’s something else entirely when you can explain the root causes of high cycle times. This sample sheet not only itemizes the company’s downtime, but it puts it in a pie chart format, one where the company can immediate see the impact of high cycle times. For those of you looking to put together a presentation, or summary, of lost time emerging from your shop floor, then this sample excel sheet might just be what you’re looking for.
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I’ve written several posts about product life-cycle management (PLCM). Most of these have focused on knowing what phase your product currently occupies in its market, what its next phase will be, and how you should outline your next plan of attack. However, as is often the case, there are bound to be some visitors who are unfamiliar with these four phases of a product’s life. Therefore, today we’ll review these four phases, but concentrate specifically on how companies should reduce inventory in the fourth phase of their product’s life. It’s during this fourth and final phase that companies should be planning to reduce their inventory counts of parts and raw materials. If managed properly, companies can reduce their inventory while setting the stage for their next product introduction.
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We’ve all heard the claims; it’s simply too difficult to compete against low-cost overseas manufacturers. You’ve likely experienced this first hand. I know I have. First, overseas competitors have lower labor costs. Second, the labor laws are stacked in their favor. Third, their overall costs to manufacture are much lower than ours. Fourth, they aren’t held back by a lot of “red tape,” and can therefore take advantage of several loopholes, ones that lower their landed costs into North America. However, despite these inherent advantages, despite their propensity to continually lower prices, there are still strategies your company can use to level the playing field. There are some strategies to defend business against overseas manufacturers, it's just a matter of putting them together. In fact, these strategies will help your company redefine your customer’s purchase criteria.
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Steve Jobs once said, “It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them.” That quote came from an interview in BusinessWeek, on May 25, 1998. While indicative of Jobs’ overall approach to product development, it’s not 100% accurate and therefore, can't be applied as the overriding rule for all product designs. Granted, Jobs was a visionary who eschewed conventional wisdom, and for that he should be applauded. However, there is something to be said for the importance of voice of customer data in product management and its use as a tool to secure market dominance. True, not all focus groups will produce results, and not all VOC data gathering techniques will bear fruit. Regardless, it’s less about the gathering techniques themselves, and more about the information they provide. So, excuse me while I go against Jobs’ strategy for just a bit as I outline why these customer data points are so important.
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Consultants love to put their own spin on things. Sometimes it’s the sales consultant coming up with an updated strategy to close more business. Sometimes it’s the production consultant using a “unique” approach to help a company increase its production throughput. Yet, sometimes it’s the marketing professional whose new model is nothing more than an amalgamation of established strategies. Unfortunately, when people mess with a good thing, it tends to get complicated. That’s why I decided to simplify the four step marketing process for small businesses, a process that will help you increase revenue, while empowering you to grow market share. At the very least, it will simplify how your company approaches its market.
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One of my customers recently asked that I help them better define their customer acquisition costs. In this case, they wanted to know how to compare the results from three separate marketing campaigns. First, we started by defining what a qualified lead meant to the company. The second step included deciding how best to reach these qualified leads. The third determined the number of qualified leads emerging from each plan. The fourth determined the cost of each lead. The fifth included determining the number of actual customers and the rest involved determining conversion rates and total sales. Granted, it sounds like a lot of work. however, it is worth the effort and it is pretty straightforward. So, here are some simple steps for small businesses looking to determine how much it costs to get new customers.
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Can a BOM substructure analysis help your company reduce the costs of one-off designs? Yes, it can. In fact, not only can it help reduce the costs of new designs, but it can also reduce inventory skews across your entire product portfolio. The analysis focuses on finding the most common subcomponents within your company’s current bill of materials. Changes are made to existing product lines and these standard subcomponents are then used in new designs, further reducing costs. In the end, you’re able to reduce your inventory skews, reduce design costs and still meet your customer’s overall envelope and unique requirements. So, how is this analysis performed?
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As a manufacturer of custom-made, one-off designs, have you taken the time to define your inventory carrying costs and financing costs on receivables? Have you tracked these costs relative to the number of times your customer has instituted a change request, a request that has halted production and forced you to make design changes? More importantly, are you aware of how these carrying costs erode your product’s gross profit every time your customer puts a temporary halt to the project, and how your company’s financing costs increase the longer it takes your customer to close their invoice? Granted, these are big questions, but they must be answered in order to ensure your company isn’t losing out as your customer makes one change request after another, or extends their credit terms. So, what must your company do in order to ensure that you’ve properly accounted for these carrying costs and financing costs?
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I’ve never been one who believed that a salesperson’s only success came via his or her “gift of gab”, or that to consistently win business one had to constantly turn a “no” into a “yes”. Granted, the ability to respond quickly in the face of adversity is a plus. However, there are times when sales must be convincing and must assume a more proactive role. Times when sales must defend price against customers who try to use them as unpaid consultants, or better put, as sources to lower existing supplier bids. There are some B2B sales statements that your sales team can use to redefine existing customer relationships, ones that just don’t seem to bear any fruit. It's about defending your price and refusing to allow your customers to use your company as a source to lower costs.
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What are the consequences of a salesperson who just can’t say no? Surprised to hear that the best salespeople often have to say no in order to win business? Surprised to hear that saying “yes” isn’t the best course of action when closing business? Don’t be. It’s easy to say yes when working with customers. Yes is the easiest of answers because it is the simplest way to please a customer. It’s less confrontational, easier to say and is often seen as the surest way to keep customers engaged. However, sales success has never, and will never, just be about saying yes. Sometimes, salespeople must be able to say no. It means the difference between business won and lost, and ultimately means the difference between your company making a healthy profit on sales, and losing out entirely.
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What exactly does a qualified marketing lead look like to your enterprise? As an enterprise focusing on business to business sales, should that definition be based on your potential customer’s size? Should it be structured around the products they buy or their geographical location? Or, should you also consider their technical requirements and the amount of money they could spend? Properly answering these questions requires you first start by segmenting your customer base into their unique business models, strategies and approaches. Every customer falls under a different customer segment, and each customer segment fills a different role in a given industry or market. Understanding these unique customer segments allows your enterprise to immediately identify qualified and unqualified prospects. If not, then you’ve forever set the table for producing one unqualified marketing lead after another. So, what are the consequences and outcomes of not producing qualified leads because your marketing strategies lack focus and direction?
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Most companies understand the importance of strategic business planning, but very few are able to move those strategies to actionable plans. Very few are able to define what these plans mean to each and every employee and ultimately, what each employee must do to make sure the plan is a success. Instead, they focus solely on the outline of their overall strategy. They are solid in providing a big picture view of the direction they want to take the company, but they lack the follow-through capabilities to see those strategies mature. In the end, they spend too much time outlining their strategic plan, with little to no focus on how their separate plans will make the strategy a success. They are on the cusp of pursuing something great, but just can’t seem to move forward. So, what can your company do to avoid this? More importantly, how can your company focus on moving strategies to actionable plans?
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Sales key performance indicators (KPI) must now match the complexities of today’s global marketplace. Gone are the days when small businesses could measure their sales team’s performance solely by the amount of revenue or gross profit they generated. No longer are smaller enterprises able to rely upon these antiquated and outdated performance measurements, only to reconcile their true costs of sales at a later date. Granted, the value of a sale and its corresponding gross profit will always be important. However, equally important is the type of product the team sells, their sales forecast accuracy, their ability to liquidate slow moving inventory and ultimately, the team’s ability to help the company reduce its cost of capital. It's time your small business track these very same measurements!
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