Sunday, May 27, 2007

Mafia Offer Boot Camp Season

I did not write last week. We were doing a boot camp in Kansas City plus a speech for a TEC/Vistage retreat in Michigan. It's Mafia Offer Boot Camp Season. This is a good time of year to do a Mafia Offer Boot Camp because budgeting and preparation for next year are right around the corner. What better way to prepare?

  • To have a mafia offer to strategically drive your organization!
  • To answer the question why change!
  • To sell the improvements you made this year! (If you uncover capacity or increase efficiencies, but don't sell them -- what bottom-line impact have you had?)
  • To have a specific plan on how to substancially increase sales AND profits!

We have a group boot camp coming up June 13, 14, 15 in Denver. If you need to decide what next year will bring and the plan to do it, you should consider attending. Drop me a line if your interested in the details and if your company is a good fit. See also

And, if you're ready for a break from HUMIDITY then you are also ready for a visit to Denver, Colorado! Did I mention we were in the midwest this week?

Thursday, May 17, 2007

Pricing using Theory of Constraints Part 5

For the products that are well above the T/CU you need to look into the following things:
- what is your close rate on these items, is it low?
- have your customers/prospects told you that you were over priced?
- do you want more of this type of business?

The products that are slightly above the T/CU you calculated are probably fine. And some of them that are well above the T/CU are probably OK too. But the ones that you would like to sell more of, but are not, due to too high pricing, these are the ones you should consider lower the price on. be continued...

Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

Sunday, May 13, 2007

Pricing using Theory of Constraints Part 4

Let's look at the products that are currently priced below the mininum T/CU that you calculated. You can have some products priced below your min T/CU because the weighted average just needs to be at the minimum. To determine if this is one that should be below the minimum or raised you need to take into account the following:
- where is the competition priced?
- does selling this product, help you to land higher T/CU products with the same customer?
- typically you have more than one of your constraint -- like have multiple printing presses. Does this particular product run on one of your more loaded ones or does it run on a less loaded one? be continued...

Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

Thursday, May 10, 2007

Pricing using Theory of Constraints Part 3

Compare the minimum T/CU to the T/CU for each product. You will find current prices that are too low and too high relative to the min T/CU.

Now look at your quotes and calculate the T/CU for all your quotes. What is the T/CU for the ones your winning versus the ones your losing? be continued...

Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

Wednesday, May 9, 2007

Pricing using Theory of Constraints Part 2

Now that we have our current T/CU for each product/service we calculate the minimum T/CU we need to cover all of our Operating Expenses plus make the profit we want. Here's how we do that:

Min T/CU = (annual OE + annual profit) divided by annual available constraint units

Operating Expenses (OE) are all the costs that don't change when you sell just ONE more of your product/service. They are all the costs not captured in the TVCs (Truly Variable Costs) and typically include rents, utilities, selling/marketing, general admin, all labor including direct, maintenance, and warehousing expenses.

To start, you can use your current annual profit, then increase it to see where you need to price to meet your profit goals.

Constraints Units (CU) are the annual number of hours or minutes you have available. So you you work one shift then use the time from one shift times about 70% which takes breaks and other misc downtime.

Now you have 1) your current T/CU for each product (see Part 1) and 2) the minimum T/Cu you need for each product. be continued...

Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

Monday, May 7, 2007

Pricing using Theory of Constraints PART 1

Deciding on pricing for your products or services tends to consume a lot of time and can even be stressful. Typically we are looking for a price that 1) will help us to achieve our financial goals; 2) meet or exceed the value perceived by the market place (will customers buy at that price?); and 3) establish the position, brand and image you desire in your supply chain.

The Theory of Constraints approach to pricing adds a slightly different perspective. When we first start working with a client we calculate the Throughput per Constraint Unit (T/CU) for each product/service. Here's how you do that.

1) List each product or category of products. If you have custom products, then use product categories. If you sell the same products multiple times, then list the individual products.
2) Calculate the Throughput(T) for each where T is the selling price minus the truly variable costs (TVCs). Typical TVCs are raw materials, sales commission, outside services, and freight.
3) Estimate how much of the constraint each product uses, how many constraint units. This is typically a time measure.
4) Divide #2 by #3 and you have T/CU for each product e.g. Throughput $ per minute.

Do this and now you have some information about your current pricing.

To be continued ...

Here's to Maximizing YOUR Profits!
"Dr Lisa" Lang

P.S. Check out our new Theory of Constraints Pricing Project!

Tuesday, May 1, 2007

Free Theory of Constraints Consulting

We recently updated OUR mafia offer to include free consulting for up to 3 months after you participate in a Mafia Offer Boot Camp. Recently someone asked me, why? I thought that the reasons would be obvious, but that's why assumptions can be dangerous.

We offer free consulting for 2 main reasons:

1) We want you to get maximum value from your boot camp. During the 3 days we calculate the bottom-line impact we project with the newly developed offer. But, if you have a great boot camp and develop a true mafia offer, if you don't implement it --> still no bottom-line results. So we schedule weekly calls to make sure that you and your team focus. We hold you accountable, answer questions, help overcome obstacles, and provide any additional examples you might need. For example, most companies create a Frequently Asked Questions document after the event and we have many examples we can share.

2) Many of the Mafia Offer Boot Camp attendees need and/or want help in implementing their offer after the event. (The exception is typically service companies that require few or simple operational changes.) As you probably already know, we offer a 100% results based option where you only pay us if your PROFITS increase. If your profits don't increase we don't get paid. This means we need to be sure that you will take our advice and implement. We can't do it for you, so we need to be sure that YOU will drive your implementation. If you are getting results during the free consulting stage, then we give you our 100% results based consulting option. If however, during each call we just talk about why you haven't accomplished anything, then we may not offer you the 100% results based option.

So, yes we are nice people, but we also want you to be raving about the boot camp because you got HUGE bottom-line results and we want to get to know you better before we go forward with a results based consulting contract.

Here's you maximizing YOUR profits!
"Dr Lisa" Lang