4i Newsletter Masthead 466

Production/Production Capacity.

Four i 466 Production

I’ve stopped asking people, “Are you busy?” Because it seems everybody is, all the time.

Perhaps a better question is, “Are you good or bad busy?”

When I asked one of our members this question last week, a lesson from former GCHQ spy and business author, the late Brian Warnes, popped into my mind, (which I think is also worth your consideration if you find yourself with little time to spare).

Every business has a limit to what it can currently produce. With time and investment this limit can be raised, but right now every one of us has a finite capacity.

If, and that’s a big if btw, you feel there’s no more time available, the team is stretched to breaking point, there’s nothing left in the tank, and you’re operating highly efficiently, then there’s only two ways to grow your profit margin:

A. Cut costs
B. Increase prices

Let’s face it, A. isn’t an option for most of us at the moment – costs are spiralling upwards.
So that leaves B.

The fear of raising prices is losing customers. But if you’re working at full capacity does that matter to the extent you worry about?

Consider this example.

Four i 466 Table

Gross profit increases by 80%

Are you thinking, “What if I lose more than 10% of customers?” then note these numbers, (based on the same example above)

Reduction in customers Gross profit

10%    £36,000
20%    £32,000
30%    £28,000
40%    £24,000
50%    £20,000

With this example, (with an initial 10% gross margin, and please note gross margins vary hugely from one business to another), the business can afford to lose half its customers by putting prices up 10%.

Rather than defaulting to asking “How can we sell more?” perhaps instead ask, “How many customers can we afford to lose with an X% price increase?” and then ask, “What could we do with that extra time, that extra production capacity?”

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