Causes of Waste
Cause 1. Ever Growing Labor Cost due to Manual Admin Work
Administering operations is always important in any business. Information needs to be obtained and passed around, decisions need to be made, instructions need to be given, records need to be kept, etc.
Some businesses can scale up to fairly large volumes and do so with very little or very simple administration: for example, a company can be selling parts for septic systems online in an e-commerce store with a couple hundred product items, order them from bulk suppliers, stock them, and get them shipped to customers, pocketing the difference - the administration on that type business will be pretty straightforward and there are many cookie-cutter operational systems that can just be adopted into such a business to make this administration very easy.
But this isn't the case in your business as it is a high-service business where you provide services with a lot of customized work needing to done per client, or maybe you have custom manufacturing or installation as part of your offering, or maybe you have a specialized service offering with a sizable amount of variation per each client, and you need to do it reliably and at a large scale. Your ability to carry out such a service and do it well is what distinguishes you and makes you attractive for your niche.
The old adage used to be "minimize variation", but now in the 2020s, it is no longer possible to easily do that. The markets have grown very saturated, there is a lot of competition in every industry, and customers everywhere have gotten pickier. There aren't a lot of business opportunities left where you can just run a minimum-variation operation with a cookie cutter treatment for every customer - and when such opportunities come up the time to enter them is very short before they get flooded with competition. To break out of that, you need to provide a tailored service that can better reach customers needs and will be harder to replicate by any competitor, as this will mean that you will have your own methodology to service your customers' needs.
If you are reading this, that is probably what your business does, and that is why you have grown and been successful so far, expanding your business year on year. Of course, with all this expansion, the amount of logical complexity in your business has been increasing at a matching or greater pace.
You need to take in the client's information, you need to decide what service or delivery pathway needs to be taken for this client or his order, you need to quote the client, enter into contract, collect payment, you need to put together necessary instructions for various staff, contractors, and vendors involved in the process and then verify and ensure successful completion of them such that the end result gets successfully produced, you need to communicate directions to the client and then verify things were done if there are things that the client needs to do in the process, etc., etc., etc. - all of these things need to be administered correctly, timely and consistently.
While it may not have been particularly hard when you only had 10-50 clients or a small number of orders to regularly deal with at the beginning of your business, now that you've grown you need to do this for many hundreds or thousands of clients and/or a much bigger volume of orders, and now that the volume is bigger you need to be more rigorous about the administration as things can no longer be kept "in the head", not to mention that now being bigger you are an increasingly growing target for the government weasels in regulatory and tax agencies who now see you as a big enough fish to go after and you are now subject to much stricter record-keeping, accounting, and/or other legal or regulatory requirements, and are always at risk of auditors knocking on your door. All this means that the amount of and complexity of administration that has to get done in your business grows up exponentially as you grow.
If this describes you, then you may very well have 5, 10, 15, or 20+ staff already employed and spending a major amount of their time doing administration, processing, and direction - and a good share of them may already be exclusively doing administrative work - and it's not like the work is particularly a "no brainer" that can be done by just any unqualified person or can be outsourced to cheap data entry outsourcing providers - this administration requires to exercise correct logic, decision making, proper communication and maintained discipline at all times, and while it isn't rocket science and may not necessarily involve some deep expertise in a particular field, it does at the minimum require a decently qualified labor force with a certain amount of training on the business processes and operations involved.
Employing dedicated staff for this work has obvious costs, such as their salary, benefits, taxes, administration, etc. - but there are also other costs that are less obvious: costs of recruiting and hiring, cost of training and onboarding, cost of replacement, cost of substitution when a person is sick or on vacation, cost of regulatory and legal risks associated with employment (especially if you're based in California or another highly regulated jurisdiction), cost of dealing with personal drama, etc. If you are hiring in the current labor market, then you are fully aware of how large and unfriendly these costs are to your business. Then there are also costs of supervision, which get bigger the more admin staff you have, as you will at some point need to have dedicated managers overseeing the admin staff.
If you are reading this, there are good odds that you are already spending tens of thousands of dollars every month on either dedicated or primarily administrative employees (it only takes 2 to go get close to or exceed the $10K/mo mark, especially considering the non-explicit costs).
Now think about how much this cost will increase as you scale. What is your growth objective? Do you plan to grow your volume say 30% year on year (or more?) - well, this cost will probably grow disproportionately higher than that as the bigger the admin operation gets the more supervision it will need, so your supervision cost will have to go up and up, eventually needing to have layers of supervision if you get big enough with that kind of manual admin operation.
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Cause 2: Bad Use of Specialist and Expert Resources
You need to also think about the admin work cost with regards to the employees who aren't primarily administrative. There are many cases where specialist or expert staff have to spend a considerable amount of time dealing with administrative things - this includes salespeople, medical coaches and doctors, manufacturing and construction experts, attorneys, advisors, etc. having to search for and organize information, put together documents and instructions to others, make and maintain records, coordinate activities of other individuals, etc. - all of this taking up their precious time that can instead be put into their specialized work that will be worth a lot more to your company (after all, why pay them the big bucks?)
All this work can add up to tens of hours each month. Think about what you could get out of these specialists if each of them worked on their main specialties for 25-35 hours per month more?
Imagine there are 5 of them in a role and you're looking to hire one more to accommodate the increasing volume, you could get the equivalent of that 6th one if you just had a way to have the existing 5 focus on their core specialty work - here is another specialist employee's worth of salary and other costs that can be saved in your business.
Not to mention that specialists and experts typically don't like dealing with administrative work, and having them deal with it does increase the likelihood of turnover which can be very costly with specialists as those typically have much higher costs of recruitment.
Cause 3. Operational Errors and their Consequences
We all know that humans are humans, and we all make mistakes. If your business involves a somewhat complex process in onboarding and servicing clients, or in fulfilling orders, or in executing any other operations, then there is a risk that a mistake will be made in its administration and while the risk may not necessarily seem that high when doing any individual operation, the need to carry out the operations at a significant volume significantly increases the risk of mistakes being made.
Most of administration and related work is very logical and while the logic in place may not always be very complex (although sometimes it certainly can be), it still needs to be carried out consistently and repeatedly, and as such it is an inherently boring exercise and requires strong discipline to operate without error, and consistent attention must be paid. Unfortunately the world we live in today in the 2020s has conditioned most people to be used to constant new excitement, and people all over the world (but more so in the developed nations) are increasingly unable and unwilling to continuously pay attention to boring things. Finding people who are willing to continuously pay attention to and reliably exercise a duty is hard and it will only be getting harder - but even these very good people will still make mistakes.
What kind of mistakes? Making incorrect decisions, forgetting to include or consider something, failing to gather the needed information properly and entirely, putting together the wrong instructions for other staff, vendors, partners, clients, etc, or just plainly forgetting to do something in time or at all.
What will be the consequences? Clients getting the wrong products or services or getting them untimely, purchasing the wrong materials or purchasing the wrong quantities, shipping goods or materials to the wrong place, clients or prospects not getting timely responses, etc.
Let's think about the costs here.
If you provided wrong or improper products or services to a client, then you will need to re-provide them, meaning having to re-do labor and re-purchase applicable materials or merchandise - even if this only costs a few hundred dollars a piece, if this happens 5-10 times a month, this easily adds up to a couple thousand on a monthly basis. Same goes for cases of shipping things to the wrong address and similar errors.
If you are purchasing materials or merchandise and your order the wrong material or excessive material then you've tied up cash in material that isn't immediately needed, and if you didn't get what you needed or didn't get enough of it, you might not find out until you urgently need it to fulfill the order on time because you discovered you're short, so you end up having to ship overnight (which can easily cost several hundred to several thousand dollars depending on the size and weight) and/or having to delay the production that can set you behind schedule (what would that cost you?), plus the obvious waste of time. How often does that happen in your business?
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Cause 4. Churn Due to Bad Customer Service
The one cost of the above errors as well as other operational shortcomings that might not always be obvious is the loss of customers.
This particular cost is usually underestimated a lot, but it should not be. Customer acquisition is increasingly becoming harder and harder across all industries - the markets everywhere are becoming very saturated with all sorts of providers, and getting the attention of good prospects for your business is harder than ever among all this noise. Advertising costs are going up, number of options among customers is becoming greater and greater, and it is harder to stand out. As such, getting a new customer in pretty much any industry is very costly and difficult. So what does it mean? Once you get a customer, you will want to keep that customer for as long as possible, ideally forever, and you also want this customer to bring you referrals and leave you reviews or testimonials - and in the modern economy the ones who master this are the ones who will succeed.
If you make errors in service delivery, or if you delay delivery, or if you take excessively long to get back to customers, all this will do is that will upset the customer. How much upsetting a customer can take will depend on the individual as well as on the other aspects of their overall service experience and value they receive from you. But generally, customers today have many options and their expectations tend to be high, so any upsetting experience can lead them to think of other options. A lot of business managers tend to brag to their boards or business owners who employ them about how the number of customer complaints drops, and while it is certainly a good thing, it doesn't always show all the picture, as complaints only indicate the cases when the customer went ahead and put in the effort to complain - not all customers will do that, some will just leave and take their business to the competition, as complaining is not only an expense of time or effort but it is also an uncomfortable interaction to have which most people would rather avoid.
So to get a true idea of the scale of churn in your business, you need to look at the customers who either cancel (if you have recurring subscriptions) or don't come back for more business despite likely being in the position of needing your services and products again. Sometimes what you discover may surprise you, as most businesses underestimate the amount of churn they are having, and especially how much of that churn is caused by operational errors that result in less-than-ideal service. When considering how much you are losing in churn, also think about how much referrals does a customer bring, and understand that with a lost customer you will also lose these referrals too. The numbers and the structure of these costs obviously do depend on the business model of your business, but there is a good chance that you can be losing at least several thousands dollars (if not tens of thousands) every month in customer churn, especially when considering the compounding value of lost customers, as the customer who you lose today will be gone the next month, and the month after, and after - which means that your true lost profit will be growing like a snowball.
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Cause 5. Lacking or Improper Follow-up
We all heard the saying "The Money is in the Follow-Up". And it is very true. If you want to have a good sales, you must exercise relevant and consistent follow-up with your prospects, and unfortunately many sales organizations tend to underutilize their follow-up opportunities or don't utilize them properly.
What a lot of people however don't see is that this doesn't just apply to sales, where the saying is most commonly used, but it also applies everywhere after the sale as well. If you want to be most successful, you want to not only sell customers but also make sure they get the best results from your services, and that they are most effectively utilizing your services, and that they are coming back to your services when appropriate.
In practice this means that you want to follow up after rendering services to ensure that the customer got the needed outcome and is happy with what they got. If your customers are on a recurring model, then you want to have structured check in to make sure they are most effectively utilizing your services and that they are set up to continuously succeed from being your customer. If your model isn't automatically recurring, then you want to connect with them when it would be appropriate to re-engage with them because they will have a need for your help. Whatever the situation, in order to be successful, it is important to do it in such a way as to first care for the customer, and then think of the way to make money out of the customer.
Many organizations only really follow-up with customers when they want to sell them something in response to a prospect's inquiry or when they are chasing past due invoices, and usually it is customers who end up having to chase the company for help when they aren't getting everything they need out of services. If you want to be successful with your customers long term, you want to make sure that you really take good care of them, and that customers understand that - properly strategized and well executed customer success and customer retention follow-up is essential for that, and if it is done right you can minimize your churn and skyrocket retention (which is always a lot more profitable than getting a new customer).
But this isn't easy to do. Effective followup first needs good strategic planning and then it needs daily regular execution, which must be accurate, relevant, and timely to each case. And this is where the administration comes in. Administering follow-up over extended period of time and at scale is difficult, and many businesses simply give up on the idea because of how difficult it is to administer correctly and timely, and given that they already have so many other things to administer, the work is already in an overload.
The numbers will ultimately vary by business, but your business could be losing as much as tens of thousands in revenue each month due to both poorly carried out follow-up with prospect inquiries, as well as in churn or lack of returning business due to poorly carried out or non-existing customer success and retention followup.
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Cause 6. Waste of Your Time and Energy
Who is the most important person in your business? That's right, it is You.
There is no need to be shy about this, you are the owner and probably the founder of the business. You've built it, and you are the person most connected to and invested into it. You are the one who knows your market, your offering, and your customers needs the best. You are the one who spends the most time thinking about how to improve and expand your business. You are the one who is most motivated for long term business success.
Think about this for a second. Imagine if you could spend close to 100% of your working time on growing your business, identifying new market opportunities, testing out new marketing approaches, adding new services and improving existing ones, setting up partnerships and joint ventures to expand the reach of your business, all the while your operations run smoothly, delivering high quality execution and reliability?
What sort of growth could you achieve in 6 months? In a year? In 2 years?
But in practice it isn't that simple, is it? You need to micromanage the administration of your business from time to time, you need to deal with errors and put out fires, you need to watch after people in your business, because that is what happens when you have large scale complex manual administration - it gets hard to watch after it very quickly.
Think about how much this lost time of yours costs you and what you could have done with it otherwise.
Cause 7. Prohibitive Difficulty to Expand in Your Market and Impossible to Grab Market Share
It is not only your time that is being lost, it is also the time in your market that is up for grabs. You probably have competitors who you are competing for market share with, and if your market is relatively new and/or fast growing, chances are there is a good chunk of market share that is being grabbed by somebody.
If you are at a point where your manual administration has gotten you to a peak of where you can scale, and any further scaling is possible only at a very slow rate and is very difficult and costly, then it means that somebody else will be grabbing that market share out of your hands.
Now think about how much that costs - over the long term you could be losing out hundreds of thousands (or even millions) of dollars of lost monthly revenues and profits as result of this.