In a previous post, I transformed Little’s Law to marketing utilizing this formula: Marketing Cycle Time = Customers in Process / Closed Sales. I would like to simplify this formula and change the nomenclature a little. I think more accurately it should be called Sales and Marketing Process Time(SMPT) = Prospects in Process(PIP) / Customers(C). You could also use the same formula substituting Prospects for possible Revenue opportunity and Customers for Revenue.
However, if you put your Theory of Constraints hat on for a second, you would consider Revenue as the Throughput. Though this is not a major change in thinking, Throughput is the measure that drives Theory of Constraints. In your marketing process, this makes perfect sense, you should be measured in Sales Revenue, correct?
Reviewing some basic teachings of the Theory of Constraints, you may start looking at your marketing process a little differently. If you believe reducing your SMPT is important you simply have to reduce the number of Prospects in Process (PIP) if your Throughput(TH) or Customers(C) stays relatively constant. If you have large amounts of PIP it is a pretty simple task. However, the question maybe, what if you don’t have enough prospects in your pipeline?
You know your SMPT is a function of all of your process time. It represents all the stages of your Marketing Cycle both value added and non-value added time. So to reduce cycle time you must reduce value added, non-value added or a little of both. Since common sense dictates that non-value added time makes up for the majority of the time and if anything you would like to increase value added time, you must attack the non-value added part of the process.
We must accept the fact that there is waste in all processes, and we must work on a continuous basis to remove it. As we remove waste, another large culprit of efficiency is variability will be reduced. However, the other item that Little’s law demonstrates is the PIP in the process. As we evaluate this number think about the cost of having excess PIP. Not having a targeted market, you may waste mailings, telephone calls and a few other inexpensive items, but I think about this on a much grander scale. Think how much you may be diluting your message. Can you afford to do that? You have heard me discuss how clarity may be the single most important reason that you lose prospects or sales. You cannot increase value-added time or decrease non-value added time without clarity.
How do you increase clarity to your prospects? Again, hopefully this does not sound like too much like a broken record but there are only two choices: reduce the number of prospects or segment your list or both.. Effective segmentation may be your single biggest constraint in improving sales. What do you think?
Great Resource on the Theory of Constraints: Ebook on Integrating Theory of Constraints with Lean Six Sigma