One challenge all shops face is the constant need to manage the cyclical nature of sales. In today’s economy, all of us regularly deal with months that are very busy followed by months that are much less so. And to make matters worse, a very high sales month sometimes will be immediately followed by a low one.
While one solution to this peak-and-valley problem is to determine a way to “even out” cyclical sales, that can prove a very daunting task. Instead, you might want to take a look at managing the ups and downs of your sales volume from the cost side of your business equation.
First, though, it’s critical to develop an accurate measurement of your sales fluctuations from month to month and year to year. This doesn’t have to be a highly sophisticated process. Just go back over the past three to five years and graph out your monthly sales so the patterns of your business cycles are quickly visible.
Next, evaluate some of the primary reasons why one month is higher or lower than another. Once you determine some of the cause-and-effect relationships to your monthly sales volumes, planning will become much more effective – and your forecasting will provide the accuracy that’s needed for planning.
As you strive to match your changing sales volumes with your production resources, you’ll likely discover some areas of focus that can really help your business. For example, controlling your inventory levels can significantly improve your cash flow. Knowing in advance when sales are going to be low will then allow you to adjust your inventory levels in advance to reflect the sales volumes. Conversely, as you approach the busy months, you’ll be able to make sure your inventory levels are sufficient to meet the demands and avoid production issues.
Your most significant area of cost control, however, will be in the management of your labor force. Right-sizing your employee count can have the most dramatic effect on your ability to save money from month to month as your sales fluctuate.
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A temp solution
One solution to adjusting your workforce to meet the ebb and flow of sales: the use of temp workers. There are, however, pros and cons to this approach. For example, when you use a temp agency, labor rates will almost always be higher, even for relatively unskilled labor. Also, when using temp labor through an outside company, you never really know what kind of workers you’ll get. Hiring an unknown person can be rather risky when quality and accuracy are critical (and when isn’t this the case?).
The use of temp labor, though, can also be a huge advantage when managing production spikes – even from week to week. Our company takes this approach when managing temp work: Rather than immediately turning to a temp agency, we’ve created our own list of available temp workers through a network of people we know and trust: employees, neighbors, family members, etc.
Often, these are workers who don’t have to work full time (or even part time), but always appreciate the opportunity here and there to earn extra money. Typically, we’ll qualify these workers through initial close supervision. Then we ask the best of these workers to come back to help us out when needed. If someone comes recommended but doesn’t turn out to be the type of employee we desire, we remove them from the list and use someone else. This method has yielded us favorable results over time.
Determining your best staff size
Of course, the use of temp workers can only do so much to help defray the costs of excess labor. Determining the “correct” number of full-time employees that you employ at any given time is critical to managing your labor resources.
Here, I’m referring to regular employees that show up to work every day, no matter how busy or slow you might be. Let’s face it, very few of your full-time employees can afford to come in and work only when your shop is busy and they’re needed. The overwhelming majority relies upon you to pay them a full wage or salary every paycheck. And if they don’t consistently get paid a full paycheck, they’ll likely be moving on to another job soon.
Once you’ve analyzed your monthly sales volume, you can begin analyzing your employee situation. How can you best staff your organization to meet your “average” demand per month? If your employee count is built toward an average level of sales, then you should be able to handle a higher sales month through overtime and even weekend shifts.
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Typically, a high sales month is characteristic of a few rather crazy weeks – which you can manage with an “all-hands-on-deck” approach. Of course, with significant overtime needed to meet these higher demands, your labor costs will go up. But such costs will always be less than staffing your organization year-round to meet the highest levels of sales; this likely will only happen four or five months out of the year. With an average level of staff, any excess capacity will be much less burdensome on your business when you encounter a low sales month.
Shift management is another tool that can be used to manage extra work. For example, when we’re running two eight-hour shifts in our print room and business picks up for a few weeks, we’ll stretch a few of the swing-shift operators into the first four hours of the night shift (alternating employees to avoid excess fatigue). And then we’ll bring a few of the day-shift operators in four hours earlier in the morning, effectively opening up a full night shift without hiring additional employees. But be cautious: This strategy typically works only as a temporary situation; otherwise, your operators will quickly burn out working consistent 12-hour shifts.
Cross-train for bottlenecks
Another very valuable way to manage higher volumes of sales is by cross-training your employees. We often find that certain areas of our business become much busier during high sales months than other areas. By identifying these bottleneck areas in advance, you can cross-train some of your people to step in and help where needed. This can prevent the need to hire additional personnel to compensate for those bottleneck job functions that occur during busy times.
The challenges we all face with cyclical sales is a critical one. But simply ignoring the problem is not the answer – doing so can become very costly to your business. Instead, pay attention to your markets and adjust costs, including staff sizes, to match your revenue streams. Apply a constant diligence to your business environment and you’ll avoid major financial losses in those low-volume months we all would prefer to avoid.