In 1984, a business guru wrote an interesting book.
It was interesting, in part, because it was in the form of a novel. It’s called “The Goal” (by Eliyahu Goldratt).
The novel outlines a number of ideas about business organisation, particularly in manufacturing.
One of these is called “the theory of constraints” and deals with bottlenecks in factory assembly lines.
However, it’s 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 a product that goes through three steps of production (A, B and C) to turn 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 increase the capacity of B. That’s because B is the bottleneck – or, as Goldratt would call it, the “constraint.”
How This Applies To Marketing
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 only have 20, then market demand is your constraint.
On the other hand, if you can serve 30 clients a month, and there are 40 who want your service, then production capacity is your constraint.
How to increase Capacity
If you have a production bottleneck, one obvious solution is to increase capacity by bringing in extra staff or contracting the work out. Sometimes you’ll find you can outsource work to a specialist for a lower hourly rate than you earn yourself.
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 services, you’ll find some of them give you higher returns for your time. So it would make sense for you to focus on your most profitable services.
This will get you a higher return for your time without doing more work.
How to increase Market Demand
On the other hand, if you have a marketing bottleneck, the solution is effective marketing. And pretty much any form of marketing is effective when done well in the right circumstances.
Personally, I like things that are low risk, low cost and have a high chance of success. These would include things like:
– Split-testing ads in order to get a higher response rate
– Split-testing your website to increase the conversion/enquiry rate
– Ask for referrals from existing customers
– Email your list more frequently
– Add more products and services – if you can sell twice as much to each customer, you’ll only need half as many customers
And one of the good things about this approach is that, if you still have a marketing bottleneck, you can use money generated by these forms of marketing to pay for more paid advertising.
Best wishes,
Steve Gibson
