How to Handle Large Changes in Sales Volume
Join us at Entrepreneur magazine's Growth Conference, Dec. 15 in Long Beach, Calif. for a day of fresh ideas, business mentoring and networking. Register here for exclusive pricing, available only for a limited time.
Q: How do I handle large changes in sales volume?
A: I assume you're talking about a best-case scenario, in which you just landed a big order or client that's going to radically increase the size of your company. (I hope that's why you're asking.) The worst case is losing a big customer or client and having to downsize drastically. As I'm sure you know, either situation is enough to keep you up at night, gripped with anxiety over how you're going to pull it off.
Let me first answer the good-news side of your question. In my experience, the most important aspect to growing big quickly is your reputation. I had one client who sold used airplane parts; he would sell the parts before he had them, take his contracts to investor groups to front the money for a quick return, then go out and find the parts from among his network of salvage guys around the world. It was all done over the phone and based entirely on trust. But he had it, and he made sure to protect it.
I use this anecdote to illustrate the value of your reputation and why you must pay attention to it no matter what stage your business is at. No bank or formal lending institution was going to give my client money to buy airplane parts without a messy and lengthy due-diligence process. But because his customers, vendors and investors trusted him, he could scale his business at will, finding the capital he needed to close the deal with a couple of phone calls.
If you're dealing with the opposite scenario, you have two choices: Wait it out, or downsize quickly. With either, you'll need to determine your break point first. That's the minimum amount of sales you need to support your current staff levels and fixed costs such as rent and equipment. With that, you'll know how long you can last based on your current cash flow if you decide to stick it out.
If you find that you must downsize, understand that some changes can have an outsized negative impact. I had a client who was stuck with a $100,000 lease on a warehouse and spent $10,000 in legal fees to get out of the lease and consequently save the company.
I'd much rather see a company do that than what's often considered an easier solution: firing employees. You may think you're being thoughtful or smart by releasing one or two employees at first and then another two a month later. Instead, all you've done is demoralize your staff--instead of working hard for you, they're worrying about who will be next. My advice: Do whatever you can to downsize your staff once and only once (or not at all).
Of course, I realize that scaling up or down quickly is never as simple as what I've outlined here, but consider this a starting point for determining how to approach your particular predicament.
The easiest way to wrest back control over a roller-coaster sales cycle is by managing the pricing of your products or services. Bump them up to slow demand and give your business more time to grow organically, or to get rid of those demanding customers at the bottom that you lose money on. Hold prices steady and find a way to add more value to your offerings to juice sales. (Note: I didn't tell you to drop prices--that's a move of last resort.)
For some reason, every small-business owner I know is scared to death of raising prices. I know one guy who took seven years to finally find the backbone to do it. And do you know what happened to his customer base when he did? Nothing.