Find Your Production Ceiling
So now we're going to move on and we're going to find your production ceiling production ceiling is the amount of products you can produce in a year and this is impacted by our time but it's also impacted by your price point because your price point is going to tell you how much product you have to produce and how many sales union and not everyone is charging their hours at the same rate so some people can produce a lot of product in a short amount of time some people it takes longer so one of the things that I think is really important to actually intentionally decide about your business is are you a high volume or a low volume business? Let me give you an example or several to make fifty thousand dollars in revenue you need to sell I know my stationery people that's why I put that four dollar price point on there so doesn't half of that number that you put out earlier so to make a hundred dive and we're gonna double that right if you're selling at twenty dollars, which I'm guessing w...
e have a lot of people that are online audience somewhere around that price point to make fifty thousand dollars we're looking at twenty five hundred dollars at sixty dollars or two hundred products that sixty dollars we're looking at eight thirty four then we had always onto fifty we're looking at two hundred products I have been very intentional about wanting to make sure that I am a low volume business. To be honest with us, I want to work that hard actually, I'm not sure I work all the time, but I want to before I want to work hard in a very strategic way, so I have very intentionally decided that I want to be a low volume business, which puts me in a higher price point category and actually my business school maybe realize that you guys right now, my business goal over the next several years in service of hating my revenue goals is to consistently increase my product prices and increased what an individual spends with me. That is the number one thing that I'm focusing on in my business and that's, because I have strategically decided that I want to be low volume. Now certain product categories decide for you you make stationary your high volume business, but you can change it a little bit simply by adding in a few more twenty dollars, products really cuts what you got to make in half, right? So the more that you can add it slightly higher price points that really helps but it's important to think about are you being intentional about the price range that your ad because that really drives how much work you actually have to do and how much product you have to produce so based on the number of revenue generating hours you have in a week, I want you to find your production ceiling. Now, your production ceiling is the amount of product that you or you plus your employees, if you have them, can feasibly produce. And for most of us, this is time bound. Now, someone asked me a question we're on break, which I thought was really interesting about capital, so if you're getting products produced for you, your production ceiling might be the amount of money that you you have to spend to produce product. But we was gonna figure out an amount of product, but that's, you can keep that in mind, too. So, you know, does a writer for cnn you might be thinking about, I have to get things manufactured? How much can I actually spend if you're not making it all yourself? And keep in mind that these air ballpark numbers this is not perfect were what kind of due in back of the napkin calculations, people were setting our goals here, right and again, it's a little bit of guesswork, but we're grounding in reality, so your time for revenue generating activities is split between making and marketing, so I want you guys to think about which scenario sounds most like you. And I actually I'm hearing something really interesting from our audience, which is not a scenario that I sort of developed but I'll talk about that a minute and I sat down actually this scenarios that were to look at when I was developing this class I I called my good friend terry gentilly some of you may know her from here on creative life and I was like terror help me like talk this out for a minute what's that split between making and marketing and what tehran I determined is that we really think there's a sweet spot that should be about fifty fifty, fifty percent of your time making fifty percent of your time marketing if you're spending most of your time on production and a little bit on marketing I called up the hamster wheel that is not where you want to be that is like a flat out and what I usually see here is that this is the result of underpricing the hamster wheel tiffany's tiffany. But even before I knew you were going to be in this class, your name came up when terror and I were having a conversation on then I call this one the start up because when you're starting up and this is actually very different from what I'm hearing from a lot of you guys but when you're starting up you actually should be devoting about eighty percent of your time to marketing and you're probably gonna get like twenty or thirty percent of your time on making so those of you who are spending aa lot of time on making but not on marketing, is it? Because is it because you're selling a lot? So like, you are selling a lot of wholesale, right? So your capacity kind of there and that's why you're making most of the time those of you who are making a lot but not marketing the rest of you did you have a lot of you're just making problem because you wanna make product and it's all sitting in your house? Yes, so in that case, you wantto talk the amount of time you're spending on marketing, even though it means cutting on your production because of course, products sitting in your house isn't good, kristen for you, it's a matter of either upping some prices so that we're getting you off that hamster wheel or slightly shifting the ratio of wholesale to retail. But I think we're thing we're talking about some price increases for you to write, and tiffany knows she has been on that hamster wheel, and she knows she needs to raise their prices and she's going to actually solve that by designing a new, higher price point collection, I'm gonna hold you to that okay way want to figure out is based on where you are or should be in this making to marketing ratio how many products can you produce in a normal week so for those of you who are on the hamster wheel let's take it down and try to keep you on the sweet spot so about fifty percent of your revenue generating activity time devoted to product making for those of you who have been making a lot but you have a lot of products sitting around you're down here calculated as if only twenty percent of your time was on making because your energy has to go into marketing in the beginning so how many products can you produce in a normal week if we're looking at me give you a couple examples so if our sweet spot they've got thirty hours a week for jet revenue revenue generating activities they might be spending you know fifty to sixty on their business but that other time is all that other stuff admin learning some new stuff playing around on facebook, running errands whatever that is so this person this is totally hypothetical say they averaged three products an hour at sending half of their revenue generating time on production that's forty five products a week makes sense and are sort of example maybe our sorry person they might not be spending as much time on revenue generating activity is because maybe they've still got a day job or a part time job but they've got twenty hours a week and they're producing two products an hour but because their start up we need to be spending most of their time on marketing so it only twenty percent production time that's twenty products a week so then what we're going to do is we're gonna look at those at our number of products and we're going to multiply that times your average product price what's the average selling point of your product and that's going to give us our weekly production ceiling so in our sweet spot example let's say they're average product price is sixty dollars wholesale twenty seven hundred dollars is their weekly production ceiling and are sorry of example maybe it's forty five there at nine hundred everyone with me so far and then we're gonna do one more calculation here what is? We're gonna multiply it by our number of normal work weeks and that's going to give us our revenue ceiling or production ceiling for the year. So in this case are sweet spots maybe working forty eight, forty weeks their production ceiling is one hundred eight thousand dollars a year because if they're going to make one hundred eight thousand dollars year but in a reasonable sane world meaning they're not wearing themselves to the bone because we don't want to build businesses that look like that they can make one hundred eight thousand dollars of product in that year our starting might be a little different because they're spending most of their time on marketing their production ceiling might be twenty seven k this is not your revenue goal, but your revenue goal for the year cannot be above your production ceiling because you can't make more than that you physically can't we've just determined that so we're going to actually now do a whole bunch of other calculations and that that tell us how much money we think we can reasonably expect to make that's what like our audience size and all of that, but yes so this is just kind of the max you could expect to make given your current situation and then dare ap says when you were calculating the number of products you have to make to meet your revenue goals should you use your wholesale price or your retail price so I run it at both and then kind of run it somewhere in the middle and this is where you also can kind of look at like what your business looks like, so I like to see it if I was running one hundred percent wholesale, you know how many products do I have to make? If I'm running all retail? How many products do I have to make and then do it if you're in a fifty fifty split and if you know what your split is, just run it there so for a long time I was at like a ninety ten, ninety wholesale ten retail, ten percent retail. Now I'm closer to I think I might like a sixty forty split like sixty percent of my income comes from wholesale, forty percent comes from retail s o I run it at that number, so you're gonna have to you have to run a couple of scenarios to see what works for you. This is where, like back of the napkin or grab, you know, third and excel document play with your numbers. These are not hard, fast and fixed. These are things that you can play with and finally is any girl ass you were talking about the sweet spot. So I think her question is related to that. How much inventory should you have sitting in your house and given time that I love this question because I hate inventory inventory stresses me out because when I look at my wall, so first of all, this is the question that comes up tio I personally don't use inventory tracking software because I am really highly visual, so I have bins in my studio that are marked out by product, and I keep product in those bins, it helps that I make jewelry it's a little smaller, I hate it when those bins air full because that is not product sitting in my studio that is money sitting in my studio, so I personally like to keep a little bit of inventory so that I can ship wholesale our ship retailers out quickly. But I make most of my product order now my one of a kind contra collection that I have more sitting around, but I strategically launched that in a way that I'm selling out a lot of it when I can, because again, I don't like a lot of inventory, so a little bit of inventory of your best sellers for quick shipping is great. But the idea is that even if you have to keep inventory like kristen does, you want to turn it over quickly, get it in and get it out? Because it's never inventory sitting there it's money sitting there. So I am guessing that there are some questions that are coming up about my production ceiling is lower, then my revenue goal or my big, audacious school. And so, as I mentioned, you can play with these numbers because you can change your production ceiling in a couple of ways. First of all, you can change your average price. Treasury knows this, she did that she raised her prices, and it made her production ceiling higher as a result. So either by raising your prices or right, bringing in higher price point items that's a way that you can change your your production ceiling, you can, of course, change your production ceiling by changing the amount of products that you can produce. You can do that by shifting the amount of time you spend on production, which I would not recommend going about that sweet spot that's not the way to do this, but maybe it's producing products faster. Can you batch product production? Can you make things repeatable? There's a lot of ways to add just a little bit of efficiency could make a big difference, especially if you're packaging a thousand cards a week, if you can find a way to cut that down by even a little bit that's a big difference and, of course, hiring someone to assist with production is obviously way to change your production ceiling and then also changing your ratio of wholesale to retail stores. So I built my business predominant on wholesale. I love wholesale. You guys know that I have an entire class here in creative live called sell your products to retailers, and I did that because it was a really easy market to enter strategically, but it means that my production ceiling is capped a little lower when I'm selling ninety percent wholesale. So I've actually made the shift so like I said now that sixty forty because changing that ratio a little bit I'm still mostly selling two stores but changing that ratio a little bit actually up to my production ceiling so those are ways that you can change your production ceiling so I want you to kind of look at how close were you to hitting your production ceiling last year were you close to it or do you have some room to grow desert where you close toe I remember what we said was your production ceiling one hundred sixty five and you were you you weren't there yet so that's great because it means you have room to grow without maxing out your capacity kristen how are you and your production ceiling did you hit that number because I know you're kind of red lighting right now I have a pretty wide range advising around twenty or twenty five being sort of an average high price um and my realistic goal for this year it's hitting it you're right you're right there okay we're not my barge but yeah okay so and then of course you want to look at is your production ceiling above or below your big audacious revenue goal if it's above it that's great because you got lots of room to grow without hitting your production ceiling if it's below it then you might have to make some shifts well, here we getting any questions about the production ceiling or even the time spent way has some questions about a couple things we have some questions about average number of products had to determine that okay um so a few people came with questions for example wanda lopez design says I make handbags and a token take any time from four to five hours a smaller bag takes less how do I come up with an average number of products per hour and sherry brit ickes says I make one of a kind jewelry piece of the requires several hours per piece how do I determine an average per hour yes so you're not gonna determine an average per hour then you're going to determine a number of products that you can dio in your production time for a week so if you have it takes you between four and five hours you know you could average out that I'm going to use for big does the mathis just exploring half makes hard math on top of my head if you have twenty hours a week and you make a product takes you four hours then you could make five products a week so don't worry about the average per hour if you're over an hour just divided by your total number of hours for the week any other persons on that um we do have a question about keeping too much inventory is a better this is back to them that's ok for okay I actually I listen shopping I like to talk about god caesonia pieces in a few people of ask this what do you recommend in terms of that telling clients that the order will ship in a certain amount of days or weeks could you make the order as it comes in or have it ready to be shipped? And how does that affect a client spending a shopping habit so I I I have it listed that almost everything in my store is made to order because I am a human I am not a robot and I have built my business around this idea that I am a human and as a human it takes me a little bit of time to make things now if I haven't have it in stock I will ship it faster because then I'm surprising and delighting my customers but I absolutely tell people that it's going to take a little time I'm pretty fast in the studio so I usually say you know two to three days if it's a little longer than that that's fine you want to kind of up front about it my wholesale clients I say two to three weeks and you could have a much longer lead time with wholesale if you want when I started I think I was a four to six week leave time so it's fine to do most let's order because they hadn't keeping all that inventory, keeping inventory means guessing what people are going to buy and that's really stressful, and obviously, some businesses require inventory. Desiree has to order so many cards up front. It's a very big headache, so if any time you could take inventory off the table, absolutely do it. It's really going to say things, and then, you know, I think as long as you're up front with lead times is it really doesn't impact a lot of people spending habits, you just have to be really clear about it. Okay, thanks. Anything else there? I'll let you go on for now. Perfect. Okay, so we I know we just did a bunch of math, and so I actually think that means it's time to take a little breather. So we set her production ceiling, so we know what kind of the max amount of money we could make this year is now, in the next lesson, we're going to look at how where you're selling to determine how that impacts your revenues were looking, your revenue streams, that wholesale kind of versus retail thing. We're going to determine how your current current audience size impacts your revenue potential. This is actually the rial thing right here is how many people you can connect with and how much you can get them to buy and that's going to determine how close you can actually get that production ceiling. And then we're going to set your final revenue goal for the year. And we're going to create a plan for tracking and measuring your progress. So that next year, when you do this revenue planning activity, it's a little bit easier and a little bit easier and a little bit easier because you start to know your numbers. It feels a little bit overwhelming right now. But I promise you, once you do this once, it's going to get so much easier.