Supply and Demand – Flail and Fail or Make it Work for You

Most of us have  heard of ‘Supply and Demand’. A few of us have reached the point of our own businesses being simultaneously  ‘overworked and underpaid’. So isn’t it time to apply  the theory and improve things for ourselves and our customers?

Let’s do a quick refresher on supply and demand. You can check the full description Wikipedia, but here is a translation:
If you have more work and more opportunities in your pipeline than you can easily handle, then the demand exceeds the supply. You are overdue to change something. You have 3 choices:

  1. Flail and fail: Continue to price your services at a point where you cannot cope with the inbound work. You will be exhausted and your customers will be disappointed because running long distance on empty does not work!
  2. Increase supply: Not so easy when ‘your’ services are the primary product. Scaling up may be some people’s dream, but others (like me!!!) were happier to see the back of their employees than their bosses when they left corporate life.
  3. Increase prices: Now there’s an idea! This should lower the demand to a point where you can meet it.

Assuming that your choice is to raise prices, be aware that some of the ‘opportunities’ in your pipeline will choose not to pay the new prices. And that is OK. That is, in fact, very OK It is even the whole purpose of this exercise – some will go but enough of them will choose to pay to keep you busy. Busy enough, but not too busy.

Benefits for you:
-    More time to concentrate on fewer clients.
-    Better compensation for the time you are working.
-    Choice of whether to hire more and share the benefits of your business

Benefits for your clients:
- Better service from your business
- Better quality in the services purchased
- More reliable service since the business will be more ‘available’

suppl,y and demand curveYou know how this works on the famous little graph, right?
1. You were, at some point, producing Quantity Q1, at price P1, which satisfied the market demand, D1.
2. Demand went up to D2. Sweet! People liked your product!
3. So either you get to increase the Quantity or increase the Price, or… sell more than you can supply and flail in the gap.

 

 

 

 

 

 

If you are lucky enough to find yourself overworked and underpaid, I hope that you have the courage to cross that gap and make a change. I am. And when it comes to that famous little graph, I am excited to finally apply with my actions something that I learned with my mind decades ago and 6,000 miles away in high school. Won’t that be something?

 

Work your Network or Give Work to your Network?

At a Referral Institute conference – all about referral marketing – that I attended last week, an attendee took the microphone from the floor. He said that his generation (OK – so he was younger than me!) must be good at networking because they have such large networks; being the generation of Facebook and Twitter and LinkedIn and all that. It may be that he understood the situation better than I heard, but what I  heard was confusion between:

•   Having networks:  Holiday-card lists, Facebook friends, LinkedIn connections etc.
•   Networking: spending time building relationships.
•   Network marketing: You marketing products to that network. Think Amway,  Tupperware et al. If you do it wrong,  watch out for that Facebook friend count – it may just drop.
•   Referral Marketing: Rather than marketing to your networks, you and your business network make referrals for each other.

I first ‘met’ referral marketing when I joined BNI 4 years ago. I gave and received referrals and found out that it just worked.  As a web developer, my clients ask me about services that overlap, or are just outside my expertise. So I consistently have opportunities to refer graphic designers,  photographers, videographers, PG guys, Mac guys…

worlds-best-known-marketing-secretThat simple? It is and it is not. Just like sales closing is a skill that people train in, so is referral marketing a skill that can be learned. I went on to receive training from The Referral Institute, which I would recommend to any business owner or sales professional. Mike Macedonio, one of the people who trained was a co author of  a great book that you can purchase here.

Which is where the beginning of this post and the end of my post from last week about Pipelines and the sales process come together. I figured out the  information in ‘my’ spreadsheet on my own, but it was all highly  influenced by the training. Which is why I really encourage you to read the book or attend the training and figure it out so that it will work for you.

 

Put that in your Pipeline and Track it: Your Sales Close Ratio

Most of our businesses have just embarked on a new set of goals. But do we know if we are on track to achieve them? I went to a BNI conference a year ago where I truly got the message  that businesses need to know their ‘closing’ ratio – the proportion of inbound contacts that actually turn into sales. [1/15/12 Edited to add. It was the Referrals for Life Day, 2011 in Santa Rosa, CA. The speaker who got me thinking about all this was Sarah Owen, of the Referral Institute, UK]

My inner-statistician and outer-control-freak bellied up to the computer with barely concealed glee. ‘We’ opened a spreadsheet and data-dived for what we could find of my sales pipeline, drawing on those trusted resources – the in-box, to-do list, my calendar, saved voicemails and annotated business cards.

Over a year of use the spreadsheet  has shaken down into a daily ‘go to’:

-   Close ratio: The proportion (numbers or value) of deals that actually close
-   # Contacts  needed each month to reach sales goals
-   Where contacts come from
-   How busy the next couple months are likely to be
-   Overly healthy pipeline? Knuckle down and bring in more subs!
-   Light on incoming work? Need to get out to do a bit more networking.
-   There are also classic pipeline management columns.

Prospects in the sales process - not yet "Signed or Declined"

Prospects in the sales process - not yet "Signed or Declined"

Month by Month: After a prospects have 'signed or declined':

Month by Month: After Prospects have 'Signed or Declined':

The image above shows one month of data, with a close ratio of 52% (9,600/18,400) , but I can run analysis across a whole year.

So what were the benefits?

1. Close Ratio:
-   About 30% of my contacts are ‘leads’ who do not qualify as true prospects. Either my services are not right for them, or they do not have the time or budget. Most of these identify themselves on the first call. If I take 3 – 6 calls like this each month, that is fine by me – I can often refer them on to another business.
-   Over a year, my close ratio is about 50%. So I ‘lose’ about 20% of my contacts during the sales process. This is NOT fine by me  – I think more of these sales would close if I present or managed the process better.
-   If my close ratio is 50% and my sales target is $10K of business each month (“Just sayin’…” that is NOT the actual number!) then I would need an average pipeline of $20K each month.

2. Source.

This was my bonus discovery. Having a year of data for this really tells me which of my marketing is worth while. These were the sources that identified themselves:
-   BNI: Referrals from my current BNI membership and activity
-   Clients: Referrals from my current clients
-   Friends: People with no business overlap who refer business to me.
-   Local Networking: Other than BNI (Chamber of Commerce, local Web forums etc)
-   SEO: People who found me through search
-   Social Media: Prospects who contacted me because of my Social Media presence.

3. Pipeline Management
Those other columns that I do not discuss her contain the steps it takes as a contact moves from lead or referral to prospect to proposal to client.