Archive for November, 2009
A Little more on applying Little’s Law to Lean your Marketing!
Posted by: | CommentsIn 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 access 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?
Related Posts:
Great Resource on the Theory of Constraints: Ebook on Integrating Theory of Constraints with Lean Six Sigma
A Little Law applied in Lean Marketing
Posted by: | CommentsMost marketing systems are out of control. They just have not been managed with understanding the process speed and the effect of the flow on the process. Understanding some of the drivers of this process is much simpler than you might think. A simple equation called Little’s Law can tell us how long it will take any prospect to be turned into a sale simply by counting how many customers are in your funnel and how many sales we complete each day, week, etc.
Marketing Cycle Time = Customer in Process / Closed Sales
Little’s Law is a pretty cool tool and more important than it might seem. Many of us may not know what our average marketing cycle time is, let alone the variation of it. But knowing when someone enters your Marketing Funnel and when they exit it might seem immeasurable. The thought of having to track a prospect through all the stages in the process may seem rather daunting. However, with Little’s Law and segmentation of your individual channels, you can get a reasonable estimate of these factors. We only need two of these factors to get the third. It is just math! We need reliable estimates but if you look at segmentation closely and how Little’s Law applies you can go a long way in getting some very useful numbers. If you know your customers and the process and how many sales you are closing you can estimate your cycle time. If you know your cycle time and the number as sales you close, you can estimate the amount of customers in your process. 
These customers will be waiting between different stages or activities. It may be either internal or external reason but for this conversation it is not important. In lean, we consider this as someone’s queue time. This time in waiting (queue time) counts is a delay, no matter what the reason. As you begin to track your customer’s flow it soon becomes obvious that some of your activities from the eyes of your customers are of little value. A critical metric of waste for any process is what percentage of the total cycle time is spent in non-value added activities and how much of this is waste. The metric used is process cycle efficiency, which relates the amount of value added time to the total cycle time of the marketing process. Typically, marketing cycle efficiency of less than 10% indicates that the process has a lot of non-value added time or added wasted opportunity.
Marketing Cycle Efficiency = Value-added Time / Marketing Cycle Time
Waste is any time, cost, etc. that has no value in the eyes of your customer. All organizations have some waste. Lean shows us how to recognize waste and by utilizing these two simple and doable formulas. Don’t accept that Marketing is not measurable, it is!
Picture courtesy of Wild Hare Decor
Related Post:
Most Marketing Systems are Out of Control.
Using the Theory of Constraints in the Lean Marketing House
Posted by: | CommentsThis video series will explain the process I use in building the Lean Marketing House. This particular segment is an overview of the Theory of Constraints and how it applies in the Lean Marketing House.
Related Information:
