We all want to increase sales, but getting new customers can be a challenge. In fact, this was the number 1 challenge readers of this newsletter listed (click here to sign up).
And it’s no wonder, according to a 2009 Marketing Sherpa study if you have 100 opportunities only 4 are likely to move from “sales ready lead” to “qualified prospect” to an actual customer.
And those numbers are based on “averages”. If you have a more technical sale (which many of you do) requiring a higher quantity of information transfer where the quality of that information, the timing of the delivery and the method/quality of that delivery can all cause your actual average to be lower.
But there is some good news. One proven way to increase conversion rates is to get the prospect to seek YOU out.
How much do you love it when a customer or prospect comes to you with what basically amounts to “I need help…”? If you’re like me, you LOVE it LOVE it LOVE it!
WHY do we love it?
* Because if they were willing to ask for our help:
* They know enough about what we do that they think we have the expertise to help; and
* That they, at some level, already trust us.
Which means the normal conversion rates don’t apply -- we have a much higher likelihood of winning this business.
If you didn’t trust someone, would you ask them for help?
If you didn’t think someone could help you, or thought they were an idiot, would you ask them for help?
No! So if someone does ask you for help. This is a really good thing.
So one of the key marketing questions (if you want more sales) is – how do I get more existing customers and new prospects to ask me for help on work I want to do and I’m qualified to do?
Here’s the formula we’ve been using to elicit the "I need help" response:
1. Shine a light on the problem. (there needs to be a message to market match)
2. Verify or validate the problem.
3. Show that it's even worse than that. (don’t exaggerate, be truthful in all of this)
4. Provide the light at the end of the tunnel.
And yes, for the Theory of Constraints fans out there you’ll notice that this is based partially on the TOC Buy-in process. Step one would be equivalent to “Agree on the Problem” and step four would be equivalent to “Agree on the Direction of the Solution”.
Let’s go through this with an example. Let’s say that I sell tooling for machine shops. And shops that use my tooling can reduce their setup times typically by 25%.
1. What problems do your customers or prospects have, that are significant, but that you can help solve?
They have long setup times. So long that a fair amount of their production capacity is spent setting up machines. Capacity that could be used for shipping more jobs.
2. How can you verify or validate this problem?
The National Institute of Standards and Technology (NIST.gov) reports that US manufacturers waste 25% to 65% of their capacity being “ineffective”[1]. That’s a large portion of US manufacturing capacity that is not productive.
[side note: I had to go find this statistic, but it wasn’t hard to do. And look at the power of having a government agency showing that what I’m writing about is important.]
3. How is it even worse than that for your particular target market?
And custom machine shops are undoubtedly at the highest end of that spectrum. Machine shops rarely have the luxury of staying in one setup for any length of time. The nature of a custom business is small runs that don’t often repeat.
4. What kind of hope is there for solving this problem?
But, a number of custom machine shops are turning these statistics around using tooling that’s designed for quick setups. This tooling costs the same as traditional tooling, the only catch is that you will need to do a little up front work with your tooling supplier.
Now, I do not sell tooling. But if I did, I could use this information in my marketing to get existing customers and prospects to respond and fairly quickly ask for help designing tooling that will reduce their setups. Will everyone? No, of course not. But the best ones will (the ones that really relate to the problem) and they are much more likely to turn into a sale.
The response you’re after could be to get them to download a report on using tooling to reduce setup times or to sign up for a webinar or to sign up for a consultation with you (depends on your sales process and what you’re selling).
We are closing over 67% of the people who contact us from this type of marketing. That means 67 sales out of 100 instead of 4. And selling Velocity Scheduling System and Mafia Offer Boot Camp is not only a technical sale, it’s a counter intuitive one. So before you go dismissing this technique, convinced it won’t work for you – I suggest you give it a try.
If YOU generated your marketing materials or wrote your newsletter and articles with the objective of getting prospects to ask for help – would you get a few more quality leads? (that's Mafia Marketing)
If you wanted help applying this concept to your business -- getting more customers and prospects to contact YOU – wouldn’t you contact me? :-)
Let me know what you think, by leaving a comment on this post. I read ALL your comments!
Wishing you success,
Dr Lisa
President, Science of Business
P.S. FOR CUSTOM JOB SHOPS ONLY: The next Velocity Scheduling System Coaching Program starts on March 28.
P.P.S. Ready to increase sales? Need a Mafia Offer? The ON-LINE Mafia Offer Boot Camp is open for registration!
Sunday, March 13, 2011
I need help ... Theory of Constraints Mafia Marketing
Saturday, January 29, 2011
I've NEVER disclosed this ... Traffic Geyser
Back in 2008 I did a presentation at the TOCICO conference called "Achieving Success with a Mafia Offer." In this presentation I covered how we increased leads for one of our clients (a custom machine shop) using the internet, among other things.
Sometimes having a great offer, a Mafia Offer, is NOT enough to increase sales. Often you have to let the world know about your offer. In this video I explained how we did that. What I did NOT reveal was one of the TOOLs we used to do that.
We were able to drive leads to their website using videos. We could get a number of positions on the first page of Google for their appropriate keywords. And they had a big jump in sales as a result.
The reason I did not reveal the tool was twofold:
1) It wasn't available even if you wanted it.
2) I wanted a head start with it. (We now have over 95% of our business coming from the internet, so we're all set there.)
So I'm now ready to reveal my little secret and it is now available for you to try and then purchase if you like.
They open up these trials and allow purchasing for only short periods of time. That's so they can control the number of subscribers and keep their service levels high.
If you're interested in using videos and video distribution to drive your Google positions, then give Traffic Geyser a try. You can do a 30 day trial for $1 by clicking this link.
Seriously, this gives you the tools to blast your content out in the form of video, podcasts, audio, articles and more, and have the world at your fingertips. I've used the system 2008, and it's been my little secret until now. Definitely the best dollar you could possibly spend today.
Whether you need or want this tool or not -- watch the video above. It was very well received and I covered what it takes to be successful with a Mafia Offer.
If you have questions or comments, please leave them on this post. I'm happy to answer questions about how to get started with Traffic Geyser.
Wishing you success,
Dr Lisa
President, Science of Business
From time to time I may bring you news of books, seminars, audios, and other products or resources I have reviewed and want to share and recommend to my readers. In the interest of full disclosure, I am an affiliate for some of these products, which means if you buy it through this newsletter, I get a commission on the sale. But the commission comes out of the seller's pocket; you do not pay extra.
COPYRIGHT 2011 Science of Business
Friday, August 13, 2010
Theory of Constraints Mafia Offers: Dealing with a Market Constraint EXCERPT
Here is an excerpt from of Chapter 22 Mafia Offer: Dealing with a Market Constraint of the Theory of Constraints Handbook.
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Introduction: What Is a Mafia Offer?
A Mafia Offer sounds like something out of a movie, not something that could seriously help you make more money in your business by increasing and controlling your sales.
Dr. Goldratt first introduced the concept of a Mafia Offer in his book It’s Not Luck (Goldratt, 1994, 133). Later, he defined a Mafia Offer as “an offer they can’t refuse” (Goldratt, 2008, 67). But in writing, he more frequently refers to it as an unrefusable offer (URO; Goldratt, 1999, 120) and more recently he (and Goldratt Consulting) emphasizes the need to establish, capitalize, and sustain a decisive competitive edge (Herman and Goldratt, 2008).
For this chapter, I will use the term Mafia Offer and have defined it as follows: An offer so good that your customers can’t refuse it and your competition can’t or won’t offer the same. In addition, I will refer to the operational improvements required for a Mafia Offer as the decisive competitive edge, operational advantage, or competitive advantage.
A Mafia Offer is simply the offer you make to your market—your prospects and customers—to make them desire your products or services and something that your competition cannot quickly match. And, of course, the offer you make is a combination of your products, services, and how you deliver them. Moreover, for your offer—the solution you’re selling—to be unrefusable, you are most likely offering something of equal or greater value than the price you are charging.
Many people confuse a Mafia Offer with a unique selling proposition (USP), customer value proposition (CVP), or a sustainable competitive advantage (SCA).
At first blush, it would seem that a Mafia Offer is similar to these other terms; however, when most people are talking about these alternatives they are actually quite different from what TOC experts mean by a Mafia Offer.
USPs, CVPs, and SCAs take what you already do and state it succinctly and with more specificity aimed at one or a few of their customers’ problems or gaps in current market offerings. These alternatives can be Mafia Offers, but most of the time they are not. Furthermore, an SCA is, in my view, an operational or technological (although these are not typically sustainable) advantage and not an offer per se.
Most companies offer solutions that solve their customers’ various problems or symptoms. With a Mafia Offer, we are addressing our customers’ core problem as it relates to doing business with our industry.
A Mafia Offer typically requires that you do something different (make operational improvements to establish a decisive competitive edge) to address your prospect’s core problem. These operational improvements allow you to actually deliver something unrefusable to your customers and something that your competition can’t or won’t do because they are not willing to or don’t know how to make the same improvements. In other words, you have to establish an operational advantage.
In this way, a Mafia Offer is a sustainable market offer built on this advantage. Mafia Offers are not a positioning or a tag line and “can only be created by satisfying a significant need of the market to the extent that no other significant competitor can” (Herman and Goldratt, 2008). A Mafia Offer is where we start if you have a market constraint.
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Spend just two hours reading this chapter and if you don’t get at least one good idea for your business, contact me and I will give you a refund!That’s a Mafia Offer and it’s real. The purpose of this chapter is to introduce you to the Mafia Offer—the Theory of Constraints (TOC) marketing solution. The chapter progresses from the discovery of what a Mafia Offer is, to the guidelines for creating an offer, to how to present an offer, and ends with how the reader can create their own Mafia Offer.
—Dr. Lisa
The best way to read this chapter is in order. Each section builds on the subsequent sections, so that when you reach the summary you will have a very good understanding of what we in TOC call the “Mafia Offer.”
Copyright 2010 Science of Business
Thursday, July 29, 2010
Theory of Constraints Handbook Chapter 22 Mafia Offers
Chapter 22 of the Theory of Constraints Handbook is my chapter. It's titled Mafia Offers: Dealing with a Market Constraint.
Here's the Amazon description:
"Spend just two hours reading this chapter and if you don't get at least one good idea for your business, contact me and I will give you a refund!" Dr Lisa Lang That's a Mafia Offer and it's real. The purpose of this chapter is to introduce you to the Mafia Offer-the Theory of Constraints (TOC) marketing solution. The chapter progresses from the discovery of what a Mafia Offer is, to the guidelines for creating an offer, to how to present an offer, and ends with how the reader can create their own Mafia Offer. A Mafia Offer delivered correctly, can give you better control over your sales. What's better control? How about closing as much as 80 percent of your opportunities?
Because this chapter is on marketing, I thought that a good marketer should get their book to #1, otherwise you're not really practicing what you preach. So after a little marketing campaign, Chapter 22 is still number 1. During the campaign we reached #1 in two categories, but as of today July 29, 2010, here is the current ranking:
#1 in Kindle Store > Kindle Books > Business & Investing > Management & Leadership > Quality Control
Click here to get the BEST price for the Theory of Constraints Handbook! (this is for the whole book)
Click here to get the BEST price for Chapter 22 on Mafia Offers! (this is for the DIGITAL version of Chapter 22, there is not a printed version of just Chapter 22).
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Here are the 4 reviews for Chapter 22 that have been posted on Amazon so far:
5.0 out of 5 stars Business can now rise way above the Blah Blah Blah, July 17, 2010
By Casinero - See all my reviews
Amazon Verified Purchase(What's this?)
This review is from: Mafia Offers: Dealing with a Market Constraint (Chapter 22 of Theory of Constraints Handbook) (Kindle Edition)
At last! Someone has written a superbly useful methodology for anyone in any situation to rise above the crowd. A must read for anyone who wants to sell "ANYTHING" including themselves, and hey! who doesn't want to sell themselves.
Fabulous job Dr Lisa.
1 of 1 people found the following review helpful:
5.0 out of 5 stars Appreciating the Master: Dr Lisa, June 29, 2010
By Jeff 'SKI' Kinsey (Hilton Head Island SC) - See all my reviews
Amazon Verified Purchase(What's this?)
This review is from: Mafia Offers: Dealing with a Market Constraint (Chapter 22 of Theory of Constraints Handbook) (Kindle Edition)
Dr Lisa once again brings real value to the market. There are about a thousand Constraints Management folks that know how the tools work at some level that brings value to their clients. Then, there are a small handful of true experts that have applied the tools so often as to become the de facto standard bearer. When it comes to unrefusable offers (UROs) also known as Mafia Offers, Dr Lisa is a group of one. Period. I am pleased to add this chapter to my iPod touch.
5.0 out of 5 stars Great chapter on Mafia Offers, July 3, 2010
By Mr. C. J. Ching (a kiwi in Scotland) - See all my reviews
Amazon Verified Purchase(What's this?)
This review is from: Mafia Offers: Dealing with a Market Constraint (Chapter 22 of Theory of Constraints Handbook) (Kindle Edition)
This is a nice little read covering the essentials of what a mafia offer is, how it differs from other marketing approaches, and how to construct one.
Buy this chapter: it's a very small bet which could have a huge financial payoff for your business.
5.0 out of 5 Summary of Unrefusable Offers, July 16, 2010
By Lane Kagey - See all my reviews
Amazon Verified Purchase(What's this?)
This review is from: Mafia Offers: Dealing with a Market Constraint (Chapter 22 of Theory of Constraints Handbook) (Kindle Edition)
This is a good summary of unrefusable offers. It defines them and then gives some simple examples of what they look like and how to build them. It is a nice introduction to the topic.
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Click here to get the BEST price for Chapter 22 on Mafia Offers! (I can't believe I did all that work and shared by best stuff for this thing to sell for between $5.56 and about $9 depending on where you are in the world!)
Here's to YOUR Mafia Offer,
Dr Lisa
P.S. A special thanks to James Cox and John Schleier for the effort in making this project a reality. And thanks to our publisher McGraw Hill.
Friday, August 7, 2009
Stompernet Mafia Offer Presentation by Dr Lisa
If you want the PowerPoint slides from my Stompernet Live 8 (SNL8) Mafia Offer presentation, just click here: Dr Lisa Mafia Offer Stompernet Presentation
For more on our private or group Mafia Offer Boot Camps, please visit http://www.mafiaoffers.com/
For more on our ON-LINE Mafia Offer Boot Camp, please visit http://www.mafiaofferbootcamp.com/
A couple links that you may find of interest that Brad Fallon covered in his Stompernet Live 8 presentation:
Video overview on Critical Chain Project Management -->Critical Chain Overview
Report on how to do the T/CU calculation Brad Fallon did at the event -->http://www.informationoverloaddestroyer.com/
Books Mentioned:
The Goal by Eliyahu M Goldratt
It's Not Luck by Eliyahu M. Goldratt
The Choice by Eliyahu M. Goldratt
Critical Chain by Eliyahu M. Goldratt
Dr Lisa's Vistage speech, Achieving a Viable Vision (find out about T, I and OE)
Wednesday, July 29, 2009
Mafia Offer Theory of Constraints Marketing Theory of Constraints Sales
We have dramatically REDUCED THE PRICE of our ON-LINE Mafia Offer Boot Camp which is based on Goldratt's Theory of Constraints.
You have no excuses! --> Theory of Constraints Marketing
Interested in an in-person boot camp? Check our our GROUP, and PRIVATE Mafia Offer Boot Camps at www.MafiaOffers.com
Sunday, July 15, 2007
Blue Ocean Strategy Review on its way ...
I'm currently reading Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim and Renee Mauborgne.
After several people coming up to me after speeches and telling me that my mafia offer idea sounds a lot like the blue ocean strategy, I have decided that I better determine for myself if that is true.
So far, let's just say it is NOT exactly true. But, I will do a full review once I finish. If any of you have any comments on the topic, please drop me a line.
I'll be back after I complete my review.
Here's to maximizing YOUR profits!
"Dr Lisa" Lang
P.S. Next GROUP Mafia Offer Boot Camp is Aug 29, 30, 31 in Denver. More information at http://www.mafiaoffers.com/
All rights reserved. ©2007 Dr Lisa, Inc.
Wednesday, June 20, 2007
Mafia Offer Boot Camp Schedule
We just completed another successful Mafia Offer Boot Camp. This was a group boot camp with 4 companies in attendance. We developed 4 very nice mafia offers. The group dynamic is always very interesting because other companies provide feedback on your offer.
We just set the schedule for the rest of the 2007 GROUP boot camps:
- August 29, 30, 31 - Denver, CO
- September 26, 27, 28 - Denver, CO
- October 24, 25, 26 - Denver, CO
- TBD Nov/Dec - Sydney, Australia
- TBD Nov/Dec - Auckland, New Zealand
"We participated in a Mafia Offer Boot Camp in May 2007. It was a great 3 days! There's a lot of passion that "hey we can do this" and the offer we developed is so much more powerful than where we started! We are looking forward to the follow up calls and to getting started!"
Bob M, General Manager of a small division of a fortune 100 company
Here's to Maximizing YOUR Profits!
"Dr Lisa" Lang
P.S. I'm on vacation next week on a week long bicycle ride through Colorado. I'll be back at the first of July.
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 www.mafiaoffers.com
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?
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
Friday, April 13, 2007
Increase Throughput -- Increase Sales
Continuing our cash velocity discussion started on March 16, 2007
Increase Sales
Increasing sales is a sure fire way to increase your throughput and is theoretically limitless. My first question is: Are you selling all that you can now? If you are a “make to stock” company, do you ever have the case where you don’t have the product your customer is looking for in stock? If so, you could benefit from DBR Scheduling and Demand Pull to ensure that you always have what your customers demand.
But, let’s say that you have already implemented DBR Scheduling and Demand Pull, and you currently can provide what they want on time. To increase sales you must learn and met your customer’s business NEEDS. New customers are earned over time by understanding the business needs that they have, then customizing your products, services, or policies to meet those needs. In TOC we call this creating a mafia offer. Market Segmentation will be a likely result of matching your offerings with your customers or potential customer’s perception of value. All that being said, sometimes business owners already know that they could earn more business from existing customers or know where that can find new customers. What stops them is cash. To grow sales takes cash and to grow sales a lot takes a lot of cash. So how do you increase your throughput without going into cash trouble?
... to be continued ...
Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.
Wednesday, April 11, 2007
Increasing Throughput -- Increase Selling Prices
Continuing our cash velocity discussion started on March 16, 2007
Increase Selling Prices
Changing the selling price for a product or group of products is difficult to cover in few words. Presumably you already have pricing policies and strategy that represent some equilibrium point in the market you serve and getting some minimum T/CU across your mix of products/services. If you understand the perceived value by your customers for the products/services you offer, then to increase prices you must stay within this perceived value or increase your customer’s perception of value. A mafia offer[1] is the Theory of Constraints (TOC) method to increase your customer’s perception of value even in industries considered to be commodities.
In addition, Market Segmentation should be considered. Identify segments of markets that have different values for the products and services you offer, then set selling prices for these markets that are consistent with their perception of value and your mafia offer. Segmentation should help you to match selling price with customer’s perception of value and allow you to maximize your selling price while ensuring that you’re meeting your customer's needs.
[1] We will discuss more about mafia offer in #1 below. Also, see http://www.mafiaoffers.com/ for more information on creating a mafia offer.
... to be continued ...
Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.
Thursday, April 5, 2007
2007 Mafia Offer Boot Camp Schedule
In my last post I mentioned "Mafia Offer Boot Camp". We spend 3 days developing your mafia offer just like Alex Rogo in It's Not Luck. Upcoming public boot camps are currently planned as follows:
- June 13, 14, 15 in Denver, Colorado click here to register now by fax
- August 27, 28, 29 in Denver, Colorado
- December in Sydney, Australia
- December in Auckland, New Zealand
Each event is open to only 5 companies, so plan ahead or schedule a PRIVATE boot camp.
What is a Mafia Offer Boot Camp and what's the cost?
Thursday, March 22, 2007
Mafia Offer Podcast
I'm taking a break from our cash velocity discussion today to make you aware of my second podcast. In this podcast Jeff "Ski" Kinsey probes with some interesting questions regarding mafia offers and our Mafia Offer Boot Camp.
The newest podcast is available here: http://tppress.blogspot.com/2007/03/dr-lisa-podcast.html
My first podcast on mafia offers is here: http://www.podcasternews.com/programs/87/better-process-podcast/3574/?A=1 This one has had well over 1000 downloads just since Feb 7, 2007.
Here's to maximizing YOUR profits!
"Dr Lisa" Lang
Here is one of the very interesting questions and the answer:
QUESTION: Confirm for us, please, why a "hands on" boot camp approach is so much more valuable than other techniques.
ANSWER: When most of us are presented with a concept, particularly if it is not one we developed we have this wonderful ability to think of all the reasons why it won’t work. So if someone told you your mafia offer or you read about the process to create one … you would simply do what we all do—come up with all the reasons why it won’t work for you.
During the boot camp YOU and your team build your mafia offer. You know your company, your competitors, and customers best. We combine your knowledge with a solid process to facilitate and guide you to develop the offer that is unrefuseable to your customers but something your competition can’t or won’t do. We usually know we are on track when YOUR team is worried about being able to deliver the offer. This happens because we first develop the offer, assuming we could do anything and setting aside all our current assumptions, reasons why we can’t change and current way of doing things.
We start over, with fresh eyes and a fresh look at your business – and this is something you can’t read about or someone just tell you about.
Tuesday, March 6, 2007
Competitive Advantage Quick Test
It turns out that mafia offers are possible for the majority of companies. The reason that most companies don’t know that they have one or know what it is, is because they just don’t know how to develop them. If you read Dr Goldratt’s book It’s Not Luck, you read about how we use cause and effect logic (the TOC Thinking Processes) about your customers, your industry, and about your company to create the offer. You also know that it’s not easy to do.
During my years in the consulting business I have asked many owners one question – if I am one of your best prospects, what would you say to convince me to do business with you? What are your competitive advantages or your edge over the competition?
Write down your answers and tune in tomorrow.
Monday, February 26, 2007
Maximizing Profits and Increasing Sales with a Mafia Offer
The best way to increase your profits is to do it in a way that is totally under your control. It should NOT depend on customers taking a price increase, or on vendors to reducing prices, or on the economy.
You can increase your profits by uncovering capacity (or utilizing excess capacity) and then selling it. The new sales dollars minus the raw materials will drop to your bottom-line.
There are many tools that can help you to uncover the capacity (Goldratt’s Theory of Constraints, Lean, Six Sigma) and many manufacturers already have plenty of excess capacity. So the challenge lies in selling it.
In the accompanying interview I gave an example of how a company, in what is considered a commodity business, developed a mafia offer – a competitive advantage or unrefusable market offer that their competitors can’t or won’t copy.
All of our consulting projects start with a 3 day Mafia Offer Boot Camp. Then if you want our help in getting your operations in shape and in implementing your mafia offer – we only get paid if your PROFITS increase. 100% of our payment is dependent on your profits increasing. In addition, we will also provide a no charge analysis so that you know if the investment in the boot camp is worth it for you. That’s our Mafia Offer to you!
Here is the link to the podcast interview: http://www.podcasternews.com/programs/87/better-process-podcast/3574/?A=1
Below is a written summary of the interview which included 3 questions.
1) Focusing on industry as a whole (i.e. your customers) what are some of the largest challenges that small and midsize manufacturing firms are facing today?
A reoccurring theme is the ability to increase sales AND have a proportional increase in profits. We see manufacturers that successfully increase sales, but then increase profits very little or not at all.
Then there are the manufacturers who remember their best year of profits but have never hit that level again and despite all their efforts can’t seem to get their profits to the desired level. They’ve been in business for 20 years and have tried everything.
So I would summarize it as – manufacturers are challenged to meet their profit goals year after year.
2) What are some of the solutions to these issues?
To have a substantial impact on profits you have to do 2 things:
1) increase your capacity with little or no investment and
2) sell the newly exposed capacity
If you can uncover capacity or if you currently have excess capacity and you sell it, the sales dollars minus your raw material costs drop directly to the bottom-line.
This leads to profit increases without having to depend on other traditional approaches that prove difficult – price increases, raw material decreases, or operating expense reductions.
3) How is your company positioned to address some of these issues?
We use Theory of Constraints tools like many manufacturers have read about in the best sell book , The Goal, along with Lean and Six Sigma to achieve substantial capacity gains in operations. The minimum capacity increase we achieve is typically 50%. These tools have been around a long time and there are 1000s of success stories. However, if we can’t sell any of this newly uncovered capacity we have had no bottom-line effect.
So now, let’s talk about how to turn that capacity into profits by selling it.
We help clients create what we call a “mafia offer”. We don’t break knee caps or anything, a mafia offer is an offer that is so good that your customers can’t refuse it and your competition can’t or won’t offer the same thing.
Mafia Offers are developed by analyzing 3 things. 1st what are (or could be) your internal capabilities compared to your competition. 2nd How does your industry, you and your competitors sell what you sell. And 3rd Understanding how your clients are impacted by your current capabilities and how you sell.
Mafia Offers are specific to a company. So while an example would not apply to you, it is a good way to illustrate what a mafia offer is.
I have a client that sells custom printed labels. These labels are found everywhere on just about every product and are considered by many to be a commodity. Their quoted lead-times were 2 to 3 weeks and their due date performance was about 80%. We started with the operations and were able to get lead-times down to 2 days and due date performance to 99%+. Sales remained stable. This was significant since their competition was at a 2 week lead-time and around a 90% due date performance.
Next, we looked at how the printing industry sold labels. They used a price quantity curve. The more labels you order the less you pay per label. If you only want one label, the price is very high.
Then, we looked at how their specific customers purchased and used the labels because an offer is only a mafia offer if it is un-refusable to your specific customers. In this case, their customers were regional size food and beverage manufacturers. One customer was a coffee roaster who roasted many different varieties of coffee and sold them in several sizes so they need about 100 different labels.
Now when they looked at the price quantity curve they decided to order what was equivalent to 6 months of labels. To decide how to spread the quantity across the 100 labels they had to forecast what they would sell. But because their forecasts were always wrong, they ended up with too many of some labels while stocking out of the labels for the fast moving coffee. We know that this was happening because they would call frantic to get more of what they just stocked out of.
We also found that their marketing departments felt limited because they could only make changes every 6 months, after they worked through the inventory.
So we make the following offer:
Mister customer, don’t give me orders. Your orders are based on your best guess of what you might need. Instead tell us everyday what you used. We will guarantee on the one hand that you will not need to hold more than 2 weeks of inventory so you have more marketing flexibility and less risk for obsolescence and at the same time we will also guarantee that you will never run out. If we ever stock you out, we will pay you $500 per day per SKU.
That’s a mafia offer – best of all worlds for your customer and you will not pay a penalty because it only takes you 2 days to replenish. The competition can not offer the same thing because they can not consistently deliver in less than 2 weeks and they could not risk paying the penalty.
What interesting is that we find mafia offers for over 80% of the companies we work with. So my questions for the listeners are:
How much capacity could you uncover or do you currently have? And What’s your mafia offer?
You can find out more about mafia offers by going to http://www.mafiaoffers.com/
Sunday, February 25, 2007
Welcome
Welcome to Dr Lisa's Max Profit Zone! We will discuss subjects related to maximizing profitability including Cash Flow, Cash Velocity, Mafia Offers (a Decisive Competitive Advantage), Drum Buffer Rope, Critical Chain, Demand Pull (or Goldratt's Distribuiton Solution), Throughput Accounting, and Goldratt's Theory of Constraints. If you have a question would like to see answered on this blog, please send it to DrLisa@ScienceofBusiness.com
