It’s in our biology.
In fact it’s in ALL biology. No stress, no growth. Too much, and the organism begins to break down. Your business is like a living organism in this way.
Applied marginal stress causes growth in your business. Building capacity to reduce overhead while staying adaptable and elastic isn’t easy, but it’s what you have to do to grow.
Let’s grow your capacity with controlled stress.
Case Study - Commercial Glass Company
Your Sales Funnel and New Client Acquisition as a process
The Operational Capacity Equation
Expanding Operational Capacity
Operational Capacity - The number of clients (or revenue level) that your operations department can devote resources to without sacrificing customer service or other guiding principles or values that the business offers its clients.
Operational capability - is the ability to align critical processes, resources and technologies according to the overall guiding vision and customer focused value propositions coupled with the ability to deliver these processes effectively and efficiently.
Limiting Factor - a variable of a system that, if subject to a small change, causes a non-negligible change in an output or other measure of the system. A factor not limiting over a certain domain of starting conditions may yet be limiting over another domain of starting conditions, including that of the factor.
Sales Driven Company Goals - A sales-driven firm's primary goal is to secure a maximum return on short-term investment for its shareholders and other financial entities that have infused capital into the company.
Market Driven Company Goals - Market-oriented company develops its activities, product offerings, and business strategies around the needs and wants of consumers in its target areas.
Decision Fatigue - In decision making and psychology, decision fatigue refers to the deteriorating quality of decisions made by an individual after a long session of decision making.
Brief Case Study - Commercial Glass Company
When Bob wanted to hand over his small commercial glass company to his son Eric, he wanted him to carry on the legacy, he got more than he bargained for.
Eric, now as president immediately began a massive campaign of bidding on every commercial glass project in the greater Chicago area. For over 20 years, the company typically grossed 5-10 million in revenue each year and had a limited staff, at the home office, supported by Union Glaziers installing on site.
When Eric’s started winning bids, he started winning all of them. Immediately operational capacity was an issue. They needed project managers to oversee the projects, and a slew of hands in the shop to manufacture a product that could be delivered to the construction site. They started hiring.
In 2016 they had revenues of over $70M - a very quick leap from a max of $10M. At the time of my visit, they had won $25M in bids executable in the 2017 fiscal year with no plan on slowing, projecting $82M in revenue for that year.
The issue arose when their operations side of the business was making costly mistakes. I arrived to see what I could do to help.
They simply expanded sales faster than they could train an effective workforce and develop a robust communication and operations plan around the new work. There were breakdowns in communication, lots of time lost in the queue for projects being bottlenecked at the one and only computer aided drafting (CAD) employee, and the labor in the shop didn’t know what to do next because the shop foreman continued to manufacture alongside the workers instead of delegating work.
When you expand beyond your capacity, you can definitely make it work, but when you have a plan to expand over time, train your new employees, put policy into place within your processes to ensure they are working at maximum efficiency and ease for the employees.
Expanding the areas of Capacity that don’t affect overhead, or do so minimally, before bidding on all of the projects or selling all of the things is essential. Plan for policy that covers 10 times your current volume. Implement software with your team that would increase the workflow and ease of on-boarding new employees when needed. Finally we’ll look at understanding your capacity and your sales to understand where you can push the envelope.
Your Sales Funnel and New Client Acquisition as a process
All Businesses have a different sales funnel, but most fit into a simple process that then breaks down into those nuanced and differing methods of client acquisition. Ensuring your sales funnel is operational, efficient, and expandable is the first step in ensuring you’re ready for sales driven growth.
Without new clients and new dollars to support your expansion, any operational capacity overhead added provides new risk. Focusing on this funnel and how your team acquires new clients is vital to propping up that operational capacity.
How are you and your team creating awareness in the market?
How are you building awareness of differentiation.
“yeah I get my printer at your competitor, what’s the difference?”
This step is essential, are your potential new customers aware that you exist? Maybe they’re aware that you exist, but don’t exactly know what products and services you offer or how you can assist them.
What are your avenues of approach for awareness? Billboards, Word of Mouth, TV and Radio, Online Ads, Online Presence Marketing?
Are you blasting awareness to everyone or highly selective markets?
People know you exist, now what builds their interest in what you have to offer?
Maybe their awareness was structured around being interested and they searched for you, they’ve already got the interest and are searching for your product, but what about those that don’t know what you have to offer?
There are a few items that can build that interest:
Norm of Reciprocity
Giving something away allows the potential client to feel indebted to you.
Customer Review Envy
Keeping up with the Jones’
Invoke a curiosity response
I have a favor that I would like to ask you - “What’s the favor? I have to check it out”
Visualizing themselves using your product or service
Pictures that focus on people using your products
Invoke emotional response
Do you love this but hate when you have to do this? Solve the problem sale
Place the most desired sell between two other products or services in price.
Photos with human faces
People are more likely to engage online with photos of people
Pain Aversion as a motivator
Emphasize that you’re solving a problem
Think Apple vs. PC or more recently Bud light versus other beers that use corn syrup
Using “Low” as a price phrasing technique
“Free product with $9 shipping” versus “Free product for a small $9 shipping fee”
Small, Only, Low Price of, Only
This is the point where customers are making a decision to buy.
They are paying more attention to what you offer, including different packages and options, so he can make the final decision to purchase.
This is when sales offers are made by using sales pages, webinars, calls, meetings etc.
Your potential new client has given you a small yes by this point by agreeing to meet with you or give you information in order to contact them.
Build urgency in this phase to incentivize their purchase.
at this stage, the prospect is becoming a customer by finalizing the deal with you. They’re signing the contract and clicking the purchase button. Then the money is transferred to your bank account. It’s important to state that there might be additional stages to your sales funnel.
Your interaction with a customer doesn’t end with a successful stage.
Retention and Advocacy (not pictured above)
This is where your customer experience comes into play. If they’re a current customer, it’s much less expensive to retain them.
Ensure that your customers are loyal, and then past that ensure that your customers are advocating your product.
What do your current sales funnel(s) look like?
Preferably you have multiple lead generation tools and you’ll have different products or services that require different strategies for gaining new clients.
For instance, an online retail business may get all clients through online and social media advertising, whereas a business like consulting may get a bit of online advertising out there but the majority of clients come from word of mouth or partnerships that generate leads.
Some funnels have stages not directly mentioned here, like customer qualification. If you are aware, and interested in a certain vehicle, you’ll be qualified by the salesperson before taking a test drive and allowed to pass into the decision phase of the funnel.
“What do your ideal monthly payments look like” is a great way to see what you expect to pay.
“Nothing more than $250 a month” may tell the Cadillac salesperson that you may be interested in a used vehicle or need to be eliminated from the funnel of prospective purchasers.
Funnel Analysis Example
A networking group is trying to grow its base of membership. They wish to hold an event to increase this membership. Each member of the group is to invite 3-5 people that aren’t in conflict with the categories that are already in the group.
Let’s break it down.
Awareness - Group members must personally identify and invite.
Interest - They’ve come to the event and it increases their interest in the group. They may decide to come to a meeting
Decision - The prospective member comes to a meeting and now needs to make a decision whether they will continue
Action - The prospective member makes their decision
Can we improve this? Absolutely.
Build awareness through a campaign to invite EVERYONE that may have networking ability to the event. Social Media, TV, Radio, or Electronic Billboards. They can have cocktails and hors d'oeuvres and have a great time. The networking group can follow up with them later after they’ve been qualified. This WIDENS the MOUTH of the funnel. They’ll get people that they have not yet met, and possibly some people that bring other people with them. Some people that come are not going to be interested, let’s make this number as big as possible in order to have the
Interest - Now create a planned follow up program, to engage those most interested from the event. The more proactive you are in this venture the more retention you’ll get from the event.
Decision - Fairly the same but we’ve already widened the mouth of the funnel and increased interest with a planned follow up program. This stage will render a high percentage more than the original funnel, due to the volume going into this step.
Action - similar to the original but this should render more due to the volume going into.
If you have 15 people invite 5 people each you will have 75 prospects that are invited.
Out of that if 30% show up, 22-23 will arrive
Out of that 22-23 30% have interest 7 attend a meeting
30% (2) decide to “buy
Use facebook to send invites to 10,000 people
5% show up - 500 event attendees
of that 20% are qualified - 125 people
of that 30% decide to attend a meeting 37.5
of that 30% decide to “buy” 11-12
KPIs and Metrics of the Funnel
Ensuring that you are keeping track of your KPIs from lead to sale is vital for this.
If you have 300 people come to your website daily and sell only one product each to 20 separate clients, you know that 280 people got lost along the way and did not purchase. Why?
Then you notice that when you sell something directly to a client through a conversation, they buy 4 to 5 products. Your website may not be motivating your web clients to purchase multiple products.
If you’re creating awareness through a targeted social media advertisement to 30,000 people per month, you’re getting 3,000 click throughs, then you’re closing 10 deals, you now have a great understanding of where the drop off is.
You’re not going to capture all 30,000 people at the top of the funnel and make 30,000 sales. But of the 3,000 click throughs, you know now that improving your website to convert more into sales from 10 to 200 is a great place to start.
If your salesperson is going out day after day and not closing any deals, you definitely want to look at the salesperson’s techniques. The same goes for your website. Your website is a salesperson. When your website gets a hot lead what is the technique it’s using to close sales? Is it doing a good job?
If your salesperson gets 100 leads and closes 33 of them, and your website gets 100 leads and closes 15 of them look at the process by which the website is using to close your sales. Deeper analysis would allow you to see which pages customers are dropping off at. There are programs out there designed to send someone an email when they abandon a cart. Sometimes people get distracted and don’t finalize their sale. Sometimes your clients want to accrue a large enough cart and order once a week or a month. It all depends on the business model for this.
This is the step we’ll come back to after we understand capacity and capacity growth goals.
If you wish to sell more, you can do a few things from here.
Increase your funnel mouth (top of funnel) by increasing advertising. Build Awareness, hit a larger audience.
Widen the funnel in the middle by improving your messaging through interest and improving decision messaging.
Close more deals by implementing sales techniques or hiring new sales team members.
Totally re-vamping your funnel may prove to retain more than you bargained for, or totally destroy your current offering. Remember that the glass company drastically increased their sales process by bidding on EVERYTHING. It almost collapsed the company.
I recommend improving one thing at a time. If every person at the top of the funnel currently bought a product, you would sell more. When you keep all other items as they were in your funnel and experiment with one area you’ll be able to see either improvement or degradation of your current KPIs. If you change all of the items in your funnel at the same time, you don’t know what is working immediately and what may cause a collapse. Work on increasing the close rate of the current aware potential clients first. Finding ways to improve their experience during their research and understanding phase will help with this.
Are you phrasing your marketing material or website in a way that entices a purchase?
After that is improved, increase or decrease your awareness campaigning to meet the need.
Technique and Calculations
As we learned earlier, bidding on every construction project in the area may drastically over-exert your operations team, and put your team at a disadvantage early on in delivering a quality product or service.
When you figure out where your growth zone limits are (top and bottom) then come back and figure out what metrics you would need to increase to achieve your closing rate goals in order to be in the growth zone.
Remember to scale for your funnel losses. You may improve Stage 02 by 300% but your stage 04 may still only increase by 15% (which might be the desired effect) so if it’s not where you want it, adjust other areas.
The Operational Capacity Equation
What is Operational Capacity and How do I know what mine is?
Operational capacity, simply put, is how many clients you can handle.
Employee Capacity + Non-employee Capacity = Total Capacity
In the Growth Track Benchmark Survey, you answered the question “If customers were lined up at your door to buy, would you find delivering TEN times the current volume of what you sell ____”
This is Operational Capacity. In a perfect world you would be able to say “very doable”. Understandably, small businesses struggle with capacity issues, but fortune 500 companies struggle too. Too much, too little? what’s the right amount of capacity for your company, in your market?
It’s hard to tell, but what we can do is calculate where you’re at and understand in what ways you can be rigidly flexible.
I recently evaluated a marketing firm’s ability to hire new personnel.
Current market for a marketing professional beginning out of college is about $40K salary. When I researched I found that 15 accounts is about the upper limit per marketing person and 17 is fairly stressful.
How much do we need to charge the client for 15 accounts to equal $40K? and assuming we want to make a profit, and add some padding in for those off months we only have 10 accounts?
The calculations are endless.
What we can do is ensure that you have the resources to not need a new employee in order to expand capacity first and foremost. We do need to look at when volume expands to the point where a new employee or team is a must because that’s the growth you want.
There’s no ONE exact formula to calculate capacity; however, you can take a few common factors and apply them to your business.
When we have X customers we start to bend on customer service.
What non-employee assets do we use to manage volume?
Employee cross training (any employee can help a client to a minimum standard of care)
Self Serve (online ordering)
Outsourced Shipping or Drop-shipping techniques
Outsourced Advertising and/or Marketing Team
What are those things that are easily flexible to high or low volume?
What are those things that each customer must have and there’s a limited quantity or supply of them? This would include employee time.
You may think of these things in a framework of Overhead versus Variable Costs. Each new client adds a variable cost, however each new client shares a portion of overhead, reducing the load distribution per client. Each new client SHOULD contribute to your bottom line and your overall margins should improve with each new client.
For instance, If you pay $200 per month for CRM software, for each new client you get, you don’t need to expand your CRM software. There may be a threshold for this, such as “at 201 clients the price bracket increases to $300” (this is highly exaggerated, I hope you’re not paying $300 for 201 clients in a CRM platform)
What are limiting factors in your ability to take on new clients?
As discussed, for a social media marketing professional, at 18 clients you will presumably need two of them. For one person to manage 15 accounts, customer service begins to decline. Figure out your thresholds for each of your limiting factors.
Do you have assets on the bench to get additional resources through other means, such as outsourcing, when needed?
How many clients can you serve with 13 massage therapists and 5 Massage Rooms, each client can choose a 30 minute, 1 hour, or 2 hour massage, and your business is open from 8:00 AM to 7:00 PM?
How do you calculate that capacity?
At any point in time your hourly capacity by that bottleneck or limiting factor of rooms. You can only serve a maximum of 10 clients per hour if they all chose the 30 minute massage, and assuming the table/bed is sanitized within the time of the appointment (there is no reset time).
It may be more difficult to calculate for your business. You may have 300+ clients in the field but not all of them require your resources on a daily basis.
Expanding Operational Capacity
The answer here is different for each business, but here we will discuss the process by which you can determine the zone that will be the most beneficial and how to come to a conclusion that best puts you in the growth zone.
Comfort Zone, Growth Zone, and Panic Zone
When you sell way too much for your operations to handle and are fighting fires, it can be costly to your bottom line and the cost of getting something wrong in any way shape or form.
Expanding into the Growth Zone
Expanding into the Growth Zone can be difficult, because it’s not “comfortable”. You must understand that that growth zone can sometimes be a 3% growth in revenue from additional activity or it can be an exponential growth that is comfortable due to the elasticity of your capacity, it all depends on your structure and current methods of doing business.
Purchasing consulting or training in order to help make your business a greater success is a risk, and it is an activity placed within the growth zone.
Did you know almost every commercial flight (during busy hours) is overbooked? It’s a practice that airlines use to fill seats that no-show passengers leave behind. It’s far easier to bump a current customer than to find one at the last minute (for the airlines).
Top 3 Suggestions for entering the Growth Zone
Take some calculated risks
Take time and spend some effort to solve a problem within your business that is preventing growth
Look at your market and do the unexpected
Avoiding the Panic Zone
The panic zone is brought on by outmatching your capacity with needed activity. On the micro scale, not being able to get all of those emails sent in one day, and on the macro scale failing to launch a product on time. (See Tesla)
the more knowledge your team has of their job, the more efficient they’ll be at their desk or workstation. The more they cross-train, the more efficient your office will run because of multiple reasons. First, if someone isn’t there, they can cover the position. Second, they understand and empathize with that position and are better able to communicate with each-other. Third, you can allocate more resources to something that needs more attention at a certain time and reduce resources to a non-priority at times of urgency.
Top 3 Suggestions to avoid the panic zone
Policy, Training, and Automation are tools to assist in your capacity.
Don’t rely on one thing, when a resource is down, your capacity drops. During a busy time, this leads to panic.
Only sell marginally more than you can back up.
Drought Resistance and Elasticity
Droughts are caused by the market, there isn’t anything you can do to avoid the drought. The only thing you CAN do is become resistant and resilient by planning ahead.
What can you do to add resiliency to your capacity?
Make recession proof hires based on necessity of the position. Think about contractors. They’ll ebb and flow with the tide of your income, they’re a risk, in their own way, but if you line your bench and don’t become too heavily reliant on one contractor, you’ll be better off.
Add infrastructure that allows for expansion and contraction without costing an arm and a leg. This includes policy.
Reduce Decision fatigue
In decision making and psychology, decision fatigue refers to the deteriorating quality of decisions made by an individual after a long session of decision making.(source).
Reduce this by enacting policies that allow the decision maker to have less of a burden. Examples of this are enabling workers to make decisions to take care of clients within a threshold. If the decision costs less than $25,000 the manager/director/superior doesn’t have to deal with making a decision. Empowering employees to make the majority of decisions alleviates a central point of decision making and thus relieves that fatigue.
An example of this is a business owner that has sole control over the checkbook. An employee must ask for $5 scissors, then the manager must bring a list to the owner, and the owner must approve each line item.
The manager should be approving scissors… not the owner. That’s getting caught up in the minutiae and causes decision fatigue.
Implement Automation or Outsource
Anything that takes anything off of ANYONE’s to-do list is a plus. If you’re not already doing it, get it ready for when you need it. I’ve had several businesses say, “I used to do all of my own social media marketing, but then I’d get busy with my current set of clients and I let it go, then it was hard getting back into it”
That’s fine, but have that marketing firm on the
outline your current sales funnel
Map your metrics
At what part of your sales funnel do you have the most drop off?
Brainstorm Options to improve this ONE thing
Map your employment operational capacity
Map your non employee operational capacity
Find your limiting factor
Brainstorm Options to improve this ONE thing