Better Utilization of Your Shop

[Mojo]

This is a spin off from another thread. Sure has been alot of them lately. :)

My background is not upholstery, I built my career as a business, marketing and PR consultant in the corporate world. I had the fun of being able to consult to Fortune 500 companies as well as Mom and Pop shops. Alot of what I did in my job and what I learned over the years can surely be applied to our business.
This maybe a bit longer post then normal but I will try and get my post across in as few words as possible.

Every business seems to have cycles. The fashion industry, the automotive industry, the airline and travel industry, etc. Let's take the airline industry for example. Their overhead or fixed base costs remain the same month after month. Lease payments on jet's, employee staffing, etc. Holidays are busy times for airlines and typically they are flying full planes to their destinations and are charging a premium or in other words full fares. But what happens when the economy drops or when they are in a down cycle where travel isn't as prevalent ? They hold fare sales and specials. Why ? It is for better utilization of their fixed base costs. It makes sense that a 767 lease payment will occur every month even if the jet is sitting on the ground. The only time a jet is making money is when it is in the air. They also cannot lay off and rehire and then train employees during these monthly cycles so they hold on to them and keep paying them. So to offset some of their slow times they run fare sales and because of this their profit  margins drop. Sometimes considerably and sometimes at a big loss. But, they are bringing more business then they otherwise would and despite a drop in margins they are still maintaining market share which is very costly to obtain in the first place. Market share is a key factor to the operations of many companies. Remember, these companies spend hundreds of millions of dollars to gain even a small percentage  of market  share.

So how does this relate to our business ? We all have shops and each of our shops cost us XXX number of dollars to have every month. Whether we are sewing or not. We also have other fixed base costs every month such as utilities, insurance premiums or what have you. So when we hit down cycles in our business that relate to either the economy or maybe seasonal related issues, our income drops but the bills keep coming in.

So I ask you that if your in the middle of a seasonally influenced down cycle is it better to cut your margins and bring in some business by offering specials ? If nothing more then to help pay the bills ? Or is it better to hold true to your profit formula and margins and maintain your rates be damned ?

Let me emphasize here that the key to moving your margins around should ALWAYS be done so as not to confuse the consumer by changing your rates. One way to do this is the same way that the big box stores do it with their fashion offerings. In order to move seasonal goods they hold specials or sales . This keeps their original price firm and doesn't dilute any brands or price points and gives them the flexibility of pricing high during up cycles or running sales during down cycles.

I am going to stop here and let all of you digest what I have said so far. If your still interested I can expand on this further and hand out some ideas to you. If it is something you know all about and do not wish to hear anymore or if you think I am full of crap and am senile then I will shut up. :)

Let me know.

Chris

[Mike8560]

Evert march wheni was up
north I had. Sale this was to promote folks to dug there boat out if the snowbank and get some work started a month early.  It worked well for me as I allways got work from it   
If i was still there would it still work? Idono

[SHHR]

Sounds interesting and I'd like to hear more. I never thought about sales and specials from that standpoint. I've always thought about running a winter, or mid-summer special to see what happens, but more from the stand point to maybe alleviate some of the spring rush syndrome. When everybody want's something done at once.
 
I also remember reading on here in the past where some are against running deals for reasons of "they already cut it so thin, they couldn't possibly do it anymore" and some feel "that sales and specials are gimmicks" that they'd just rather offer a set deal.

I certainly see those points of view and aren't criticizing them, but you've caused me to think a little different that before.

I suppose that's the benefits of having you as our resident marketing expert :) .
kyle 

[Mojo]

OK, I will continue on then. I just didn't want to waste my time or yours. :)

As I mentioned, it is very important that you do not send the wrong message to a consumer which can dilute your flat rate hourly labor charge. By this I mean you do not negotiate an hourly rate but rather give the customer a discount by using a percentage formula such as 20 % off. This sends the message that your hourly rate is firm but your only offering a discount. The whole idea here is to protect your hourly rate and reputation.

By offering 20 % off coupons or " Limited Time Only " sales your propping up your rate and are protecting it. What are you protecting ? You are protecting your margins for the future when the cycle is up. In other words you do not come across as a bad guy raising your rates while sending a confusing signal to the consumer making him/her wonder - what are his rates ? Did he just raise his rates on me and is screwing me over ?

Offering sales is one way to spread your work out over the year. How does this help ? It helps by smoothing out your cycles and making your highs lower and your lows higher. It helps you utilize your shop better by spreading the work out over the year and it also evens your income providing more cash during down times.

I will tackle the next issue in this long " series " with specials and discounts.

Chris   

[sofadoc]

Many years ago, the street in front of my shop was closed for several weeks. In order to get to my shop, one had to navigate around a "Road closed to thru traffic" sign. Since most of my customers are women, I soon found that women are not as apt to go around these signs as men are.
In order to entice customers, I ran some specials in the local paper.
I spent the better part of the next 3 years telling people "NO! I'm not running that special anymore!"
Their response was usually something like "Well, when WILL you be running another special?" 
Some people would go naked waiting for a sale at a clothing store.
Think of all those who hit the department stores at xmas for the "Doorbuster" specials. They swoop in, grab the specials, and leave. Not at all what the store was shooting for.
The airline example is a good one. They have fixed costs every month. So they must have a steady cashflow, even if it's a negative one in the long run.
I've only had a few lean times over the years. For me, I'll ride them out.

[Mojo]

Before I go any further let me explain that my career also entailed doing studies, surveys and holding focus group sessions ( where you sit behind a mirrored glass taking notes while a facilitator ask's questions of your consumer panel ). In order to market you have to climb inside the consumers brain and trust me being inside their head is an interesting and complex place to be. It was all part of my training and education " to understand the consumer ". :) So in effect, my education didn't come out of a book but rather came from being in the trenches.

OK. Now lets tackle the " Sales " issue. Every one loves a sale and when economic times are bad, people flock to the sign that says clearance, sales, limited time offerings, etc. Why ? Because of the psychological makeup of the consumer.  Our brains are programmed during our young adult years to recognize the term SALE.
To further state my point and during some recent research on servo motors I ran across a website that had a sewing machine motor page. On there was a servo motor that had a price of $ 155 but it was crossed out and below that was a price of $ 145. OK. This motor cost $ 145. But is this on sale ? Is it a new price that will continue ? If I want it 4 weeks from now will the price still be the same ? This is how the mind of the consumer works. Never create confusion inside a consumers head because your going to lose if you do. They will often times or not get a brain signal that says " walk ". Instead you want to create happy signals that is pleasurable and is better known as " impulse ". You can create this simply by using keywords  " Now On Sale " or " While Supplies Last " or " Limited Time Only " underneath the new price.

What you are doing is protecting your margin and price by claiming it is on sale which to the consumer means " Temporary ".  This in turn create's the reaction of " I probably better buy it now before it goes off sale ". So by looking at this servo motor pricing scheme the business owner can - during busy months -  pull the sales price and revert back to his old price of $ 155, protecting and increasing his margins. Also, instead of having a bad taste in his mouth about the pricing scheme and blaming the business, the consumer will blame himself for not acting then and there and buying while they had the chance.

You as an upholsterer need to do that as well. Protect your prices ( margins ) by using key words such as clearance, limited time only sale, sale, etc. all of which are impulse triggers. You can then have the flexibility of pulling your sales pricing structure  during good times and reverting back to your original price ( or healthy margins ). You also come across as a good honest guy to the public because you ran a sale, they may have missed it....their fault, their bad. You do not want to come across as someone who plays games with pricing such as one price one day that is crossed out and one price the next without an explanation. The word sale ( or a derivative ) satisfies that issue and prevents any hard feelings.

So when do you run sales or specials ? That is pretty obvious. You do not hold these events during booming times. You hold them during down times when your at the bottom of your cycle. Surely your going to take a little future business from yourself by stirring customers emotions and bringing their order into your shop at cheaper prices now rather then later.  But your not completely cannibalizing your future sales. Someone maybe plopped down on a sofa in need of a recover or look into their back yard and see their boat and say " I think I am going to have this recovered. I always wanted to and since they have a sale, now is the time ".  Who knows, maybe they would have never dropped that sofa off if they didn't see your sale ad. But remember when I talked about market share ? We will explore that in the next installment.

Next up - Market Share and Loss Leader Items and how they apply to maximizing your shop and fixed base costs.

Chris

[Mojo]

Market Share. If your shop is in an area that is devoid of competition then you are standing in one very enviable spot that many others wished they were standing in. Your king and can command higher margins all the time ( within reason of course ) because consumers have no choice.

In Doc's case above I do not know what his circumstances are. What his competition is like, his business model or his annual cash flow cycles. I also never seen his ad's so cannot comment further on his circumstance. But maybe some of what I have to say below will dispel any negative thoughts on sales for others.

As Doc pointed out he had people wanting sales ad's honored long after the sale was over. One way to prevent this is by making sure you put expiration dates on all coupons. Another way is by placing your ad or coupon statement with the caption " Limited Time Only ". These are impulse signal's that says buy now.

Let's move on to sales and market share. Remember me saying that large companies spend exorbitant amounts of money just gaining market share ? It is true. A perfect example of this are grocers in my area. You have Winn Dixie, Publix and WalMart as the major grocer chains. How do they claim and build market share ? Through sales. One of the most popular sales tricks they use is called loss leader items. They knowingly will sell a gallon of milk at a loss but they also know the odd's are in their favor that the same customer will be over on the next aisle buying a can of beans, a loaf of bread, some meat or something else.............all at full price. At the same time they are going to bust their butt's to make your shopping experience pleasant so as to make you a loyal shopper. I have friends who refuse to buy their groceries anywhere else but Winn Dixie or Publix simply because they love the short lines, they love the friendly service and they love not shopping in a chaotic environment. ( trust me there is a huge difference in the energy level of store such as Publix versus WalMart ). And what is funny is they knowingly spend 10 - 30 dollars more for groceries versus Walmart or Target.

So what they did is gambled a 50 cent loss on a gallon of milk in order to try and convert a customer. If they convert that customer their market share increases and along with that so does their revenue and profits.

But how does this all work with upholsterers ? Most of you probably do not know I run discounts 12 months a year. 10 % off to all senior citizens and military vets. I also have 10 % off specials for any members of certain RV associations. I am losing 10 % of every order I take but I am increasing revenues along the way and am subsequently increasing my revenue which over time increases my profit.

Continued.......

[Mojo]

I got cut off on my last post due to exceeding the max character limit. Sorry. :)

I am now about to embark on a sales strategy that includes specials to the general RV public, above and beyond my normal sales offering. I have no choice but to find a way to smooth these dang seasonal cycles out. I am starving one month and am killing myself three months later with orders out the ying yang. During these down cycles I have two machine sitting idle and damned if I can get the electric company to drop my light bill because I am slow. Every bill I have every month keeps coming whether I am rocking and rolling or snoozing through the days. I would much rather have a manageable, steady and easy flow of revenue and order placements by trying to manage my workflow using sales.

How will I accomplish it ? Through strategic sales campaigns. In order for me to do this I need to find my exact down cycles and plan accordingly. I also need to pour over all of my orders, receipts for goods and make sure I have my margin nailed down to a solid number so I do not give away my services. Then I can launch the sale and hope for the best.

I do not have a choice. I have to start spreading my work out throughout the year and if this means taking a hit on my margins during the lower cycles, so be it. But I also know that if I can get a customer in my door, chances are I may take a hit on my margins at that moment but it is going to come back to me in spades.

A perfect example is I did all the awning covers for one RV member within an RV association. he told another who ordered a set from me. he told another who ordered a set for me. And on and on. I did the original customers set 4 months ago but am still getting calls off that one order and now I am getting calls of the new orders who went and told others. It is called " Market Share " and I want some. :)

The same thing happened to me with a senior citizen in an RV resort. I did a huge solar screen job for his mammoth 5th wheel. I covered every single window he had. And I knocked 20 % off his order because of the size of the job. I could afford to because my margins on solar screens are so huge they are obscene.  He was so frigging tickled over the deal that he went and told all his buddies at the weekly poker game and I ended up booked nearly 2 months out. Loss leader item ? You bet. But in the end I made alot of money of his order and I made a helluva lot more off his buddies orders.

This year is starting to be a banner year for me and maybe my biggest year ever. So why start a sales campaign now ? Because I know I am going to hit the slack time soon and I need to generate some revenue to pay those monthly bills. In a nutshell I would rather make $ 50 per hour then $ 65. But I will always maintain that option of reverting to healthy margins for the busy months and do it without upsetting my customers by utilizing limited time offerings.

Any questions ? Fire away.

Chris

[Mike8560]

 what I did was  this I was In a busy visia le va atio. Location.  A d alot of poleople would drive hp tothe lake ton heck bow far  the i e was melting. So I'd out out. Sign so much percé t off all new canvas.  March sale % off.  I told them I got. Distributor discounts to but early and was just passing them on. I
could have done this also other times of the year but I wanted to get buisness going early.
Here in Florida I'm prety steady  so I havnt   

[SHHR]

I can see where that would be a sure fire way to keep someone booked steady year round, and maybe a way to even grow your business if you were looking to add employees or such. Offering a discount say for the month of August on all new bookings. If customers take advantage of that, then surely you won't be able to complete those in that time frame forcing you to carry over to later weeks or months. By then you're booking work for the winter at regular prices that you won't be able to get to right away, then maybe offer a mid-winter deal.

By cutting 10-20% off of a few orders you're essentially adding to your profit many times over.

Thanks for that help. It is greatly appreciated.
Kyle

[Mike8560]

O agree with you on  your beter to make 50 the. 65. The other day with only  q couple small jobs on The schedual I quoted a decent job  at a lower cost them in boom time. And told him why. He said ok lets do it and I'm not even  Going to ask the wife   Then today I got a call to  replace an  old ultra leather sette with somthing more durrable and then some canvas  on His 35 carver so I  priced it normal. I'll  see tomorow he's commingb. To look at more samples.    

[sofadoc]

OBSERVATION:
Chris, I always got the impression that you made a career change not only for health reasons, but because you were tired of the"Rat race" as well.
After reading these posts, it seems as if your recent success has got your "marketing" juices flowing again.
Go with it man. Don't deny yourself what you were born to do.
The advice you've given in these threads is perfect for a small shop that wants to become a big shop. It's the kind of stuff people pay money to hear.
Some of the younger, and/or more ambitious shop-owners better sit up and pay attention. 
Watch out "Rat race". ;)

[Mojo]

Doc:

I would be lying if I said I didn't miss my job. If I hadn't got this disease then I would still be out there cranking. :)

But at 42 the Doc said there is no way to work full time with Leukemia and do chemo so he essentially retired me. They also gave me 5 years at the time so I figured I better get the hell out there and really enjoy life while I still had it. 8 years later and I am still alive.

Marketing was my forte. I lived it and breathed it everyday. I loved the job and the challenges and I miss it.
But I also enjoy this work and my laid back retirement / work life.... lol But the day will come when I have to close my doors and call it quits. I have no idea when that day will be but it is coming. We shall see.

Right now I am getting a lot of pressure from the wife, family and friends to slow the hell down and relax. But I have always been high energy and type A. It is hard. I would love to find a young man or woman who has a big passion for this work. I would love to help them get setup in business and then work with them along the way to see them succeed. But try finding anyone that is young and likes this business ( and one you can trust ).....lol

Thanks Doc. I appreciate your comments.

Chris

[Mike8560]

Just think of all the fun you could have had   Hris if f you started  this 20 years ago ( for other reasons )
I have been knda forced to slow down a bit and would have like to have trained my son. But he just didn't have the abition or desires to learn.  

[Saddleman]

Listening and being a sponge!   8)

A problem I have is being swamped right now...have been all year.  I left the day engineering job at the first of June, because I had reached that tipping point and could not keep up with the business.  Volume and market share are great, but being a one man shop all that does is kill me...sure I am making money, but that is not everything.  I need to figure out control of sales volume...sort of meter it and then focus on bringing in higher margin work.  Ideas???