Capacity Management

Picture this: business is booming. You can’t keep your stock on the shelves, or there’s not enough hours in the day to serve all your clients. Sounds like a good problem to have! It’s certainly better than the alternative – not enough business to keep the lights on.

You have three options to respond to this scenario:

Do Nothing

Make no changes, get burned out, lose customers due to frustration over not being able to access your goods/services, and leave money on the table. Obviously, this is not a good option at any time.

Increase Capacity

You could hire more staff, add physical capacity by expanding your current space or buying/leasing a new space, or look for opportunities to automate tasks. You’ll be better able to serve all your current and future customers, but the up-front capital costs and new operating costs could be very expensive.

Raise Prices

Higher demand demonstrates that your product/service is highly valuable, so a price increase would be reasonable. Raising prices tends to push away low-profitability customers and can increase overall revenue, but it could alienate otherwise good customers who’ve become accustomed to your current pricing level.

Whichever of the two latter options you choose depends on your circumstances. How easily can you expand capacity, and can the cost be kept low? Can your customers absorb a price increase? There is no straightforward answer that applies to all businesses, so it takes careful analysis to arrive at a solution that works for your company.