How to improve your online businesses and not die trying

The main goal in online projects, like in the rest of the industries, it is to maximize the benefits. If you want to do that the key is taking as much as you can from you current capacity (what you already have).

The best thing that could happen to us is that much of what we are looking for (our goal) crosses through our system (campaign, website, shopping cart, etc). The effective quantity of things that flows through your system is called throughput.

In order to simplify the process lets say that our online project is based on three main activities.

1- SEM Campaign.

2- Product landing page.

3- Sales confirmation.

Now let’s say that the SEM campaign drop 50 people to our product landing page, from which 30 of them select a product and just 10 of them finally buy a product. So what is your throughput? Exactly, just 10!!! Which means that is doen’t matter how many people you’ve got in your campaign and in your product landing page. All that people is your non converted stock, or to make it simpler, “raw material” that cannot be converted into final product. I mean, your goal it is generating money through sales and not accumulating people in your home page, that will increase your operative cost and decrease your throughput. All the people you driven to your site through any campaign represent a cost to you so if that people doesn’t represent a sale it is just dropped money.

Now, you have in your system (project) several bottle necks. We don’t get all the clicks from our impressions, nor do the total pageviews (in the product landing page) from the clicks and finally we don’t get a sale from each pageview in a landing page (we could add an extra step, a very important one. We don’t get a repeated sale from each sale).

Let’s see an example of how people behave today. Let’s suppose that we have an ecommerce site. The ecommerce site receive leads (or potencial clients) from a banner campaign. We have the following process:

1- clicks= 1.000.

2- product view= 200.

3- sales (conversions)=  50.

Can you calculate the throughput? Well it seems to be very simple….just 50!. The problem is how we understand our system and, then, make decisions. In order to increase sales most people increase the advertising budget. Increasing the advertising budget doesn’t increase your bottle neck capacity. It just increase the quantity of people in your site (remember that in this case your goal is money and your earn money by product sales) which increase your cost but not your throughput generating a huge stock in people (in this case people = stock = cost= waste of money).

Now, why should we try to drive more people to your site when the restriction (bottle neck is not there). Even when it is true that we will increase our sales, we are just cheating ourselves because we are not solving our main bottle neck, the one that is restricting our sales.

If instead of understanding our project as lot of things we consider that they are one thing composed by a group of things working together is gonna be easier to make the correct decision. Our bottle neck is sales, ok?. Right. What would be our first step in order to improve our sales? First of all we should try to understand what is preventing us of increasing sales from 50 to 200. Right now that is just our restriction and we must focus all our resources in improving that bottle neck. Any improvement we carry on in that bottle neck will generate more results than in any other place within your organization. Why? It has two reasons. The first one is because if just one extra thing flows through this bottle neck you will increase your throughput directly. I mean, it doesn’t matter how good are you improving things in other part, if you don’t get a new sale then you didn’t improve anything. The second reason is “because you are attacking the problem directly”. It is like when you play pool. You hit the white ball with the stick, the white ball hit the next ball and so on. So you are hitting the last ball with less strength than if you hit it directly. In our case, you will get more results with the same resources if you “hit” (solve) your restriction directly.

Remember, your system has just ONE main restriction preventing your system from a higher throughput, and it changes every time. Follow the next steps:

1. Identify the constraint (the thing that prevents the organization from obtaining more of the goal)

2. Decide how to exploit the constraint (make sure the constraint is doing things that the constraint uniquely does, and not doing things that it should not do)

3. Subordinate all other processes to above decision (align all other processes to the decision made above)

4. Elevate the constraint (if required, permanently increase capacity of the constraint; “buy more”)

5. If, as a result of these steps, the constraint has moved, return to Step 1. Don’t let inertia become the constraint.

Thanks Eli Goldratt for sharing your awesome ideas with us.

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