Are you at the limit of your capacity?
Peter Knight
‘Starter Pack’ for new franchise owners. Be set up properly from the start. Includes new Company, ABN, TFN, GST and Xero set up etc. DM me ‘Starter Pack’
“No matter how hard we try to increase sales, we seem to have hit our limit!”
If you feel like you're at your limit, you need to ask, "What is your ‘Capacity Limiter'?”
Every business has one. It’s a constraint on your capacity that limits the income you earn.
Understanding ‘income’ should be pretty easy. Afterall, it’s a fairly straightforward formula
- Income = Price x Volume
This means, income is a result of the number of units sold times the price charged per unit.
So, to increase income you could increase price or increase volume
- But what if there’s a limit on the number of units you can physically sell?
Consider the following businesses:
- Lawn mowing business:
Income = Price per lawn x Number of lawns.
But with only so many hours in a day, how do you get all the lawns mowed in Spring and Summer?
- Swimming lessons or Pilates classes:
Income = Price per class x Number of students.
But what if there’s a limit on the number of students you can have per class? And what if certain times of the day are more popular than others?
- Pizza Store:
Income = Price per pizza x Number of pizza’s
But how do you deal with peak times (Friday and Saturday night) when pizza’s take a certain amount of time to cook?
- Photographic business
Income = Price per shoot x Number of shoots
But what if most of your customers want sunset shots? (You can’t be everywhere at once).
- Professional Services firm
Income = Price per hour x Number of hours chargeable
But what if you're already working long hours and your clients are resisting fee increases?
Why is this so important?
- By understanding your constraints, you can work out the earning capacity of your business.
Yes, but why is THAT so important?
If you’re buying a business, it lets you work out the maximum amount you can earn.
- You can then decide if that business can provide you with the income you need (or want).
- If not, you can either move on to another opportunity, or factor this into your purchase price.
If you’re already running a business, you can see where the limiters are holding you back, and put strategies in place to work with them.
- You can also look to be super efficient with your staff and resources
If you're planning to sell your business, you can be prepared for the question your purchaser may ask.
- You can also put strategies in place to deal with this before you sell.
Once you understand the impact of Capacity Limiters for your business, there’s a number of actions you can take:
- Identify what the specific Capacity Limiters are for your business
- Make sure you make the most of the busy times
- Be sure your resources are in place and your staff are properly trained – don’t let any opportunities fall through the cracks!
- Find ways to generate income in the quieter times
Understanding your Capacity Limiters can help you deal with frustration and inspire you to look for ways to deal with them. Every business has them, so it’s important to understand the impact they have on your business.
If you'd like to discuss the capacity limiters in your business, feel free to contact me
Peter Knight
Former multi-site venue owner now CEO/ Founder @Peiso | President AWCC
8 年Great article Peter Knight. In my industry I often talk about the perspective that we sell time, not products; if it takes 5 minutes to do a thing, you can only do 12 an hour without adding labour to it. And as a peak and trough industry, where the vast majority of your revenue occurs in very limited time frames, throughput is a critical consideration, and a tool operations often neglect to both understand, and to utilise to their advantage.
Director at Levi Consulting
8 年Peter agree. TOC.
International Tax Specialist ????????????????????
8 年When a business reaches its capacity limit they need to streamline processes, automate and standardize. Remove wasted time free up time to scale. When businesses reach a capacity limit they have a luxury problem. Scaling up to deal with greater capacity or only accepting work up to capacity limit are the only decisions that need to be made.