CWB July 2003

Still the Letters Come!

If you are serious about expanding your customer list and increasing profitability, stop comparing your shop to others.

By Anthony Noel

One of my favorite things about writing this column is the opportunity it provides for an ongoing dialogue with readers. Often, that dialogue helps inform my thinking about the subjects covered here.

There have even been a few times when readers' questions or comments have led me to react in a more direct way. This is one of those times.

I have found that the older I get, the less patience I have for lazy people. I made that impatience pretty clear in a column I wrote last year called, "Do the Work!" Nonetheless, I seem to get one or two letters every month from owners or managers who are clearly seeking the easy way out. "Please," they beseech, "provide me with some average prices (or budgets, or profit margins, or whatever) of other shops like mine."

If you ask me, these folks are just too lazy for their business' own good.

I try to be polite. "I am sure you can find such numbers somewhere," I say. "But," I add, "even if I had them, I wouldn't give them to you, because your shop isn't like anyone else's."

At first glance their shop may seem very similar to others. But what is different, in absolutely every case, is the individual shop's costs, production methods, clientele, shop-floor talent...need I go on? Yes? Fine. There is also management structure, profit goals, insurance exposure...

Get the idea? You would be surprised how many don't.

I can usually tell when they don't get it or, more accurately, when they refuse to get it, because they don't write back. But even when they do, I am never too confident they will make the changes they must make to turn things around. If I had to guess, I would say that maybe 20 percent (and that's optimistic) press forward and begin looking at their businesses as the unique entities they really are.

This is actually good news for the real pros out there. Since many managers are willing to accept mediocre projects from unrealistic customers at lousy prices, the plum jobs are out there for the rest of us!

If that sounds a little smug, please consider my situation. I have tried to convey these truths as diplomatically and eloquently as possible over the years. But still the letters come. So I can only deduce (as mentioned above) that it is not so much that people don't get it, it's that they don't want to.

In "Do the Work!," I mentioned that many shops start out as part-time ventures, with their owners charging bargain-basement prices. This might be okay if these owners, upon taking their companies full-time, were to begin charging prices that actually correspond to their costs. But oftentimes they don't. They can't, because in most cases, they don't know what those costs are.

But even more unfortunate GÇô and I see this all the time GÇô is when owners or managers who do know their costs refuse to structure their prices accordingly. They are more concerned about what other shops are charging, convinced that as long as their prices are competitive, they will get their fair share of work.

And they are content with that!

They are so concerned with finding customers that they never give customers a chance to find them. They are so relieved to have work, even marginally profitable work, that they never seize the opportunity to do highly profitable work.

They fail to understand and to capitalize on the primary advantage that custom shops have over other sorts of manufacturing operations: the "custom" part. Even in a competitive-bid situation, custom shops can choose between pricing the job based on what they think others are charging or pricing it based on what it really costs to produce it.

Choosing the latter option doesn't get them every job; it gets them profitable ones. In time, they become known in the market for what they do best. They gain a reputation based on the quality of their work and their particular specialties. In other words, their customers find them. The customer list grows and so does profitability.

No, it is not immediate. It is a gradual process (some might call it a manageable process). And even when you know your costs, it won't change the fact that some jobs will (always) be more profitable than others or that economic conditions occasionally may require accepting a string of break-even work.

But without knowing your costs, you won't have any understanding of such issues at all, let alone options for dealing with them. You won't know when you have enough profitable work in the shop to permit you to take, say, a high-profile but less-profitable job. You won't know a break-even job even if you trip over it.

And that is the best reason to name your own prices and know what's behind them: Because when you understand these things, you will know profitable jobs from losers almost immediately.

The question is: Are you too lazy to bother?

Have something to say? Share your thoughts with us in the comments below.