The results of our CNCCookbook 2020 Machine Shop Marketing Survey are in!
I present all the numbers and benchmarks against two groups:
- Overall: Results include every respondent.
- Top Growers: Results include the 20% of respondents that grew the fastest from 2018 to 2019.
Note: At the end of the article, I will summarize the 12 best nuggets of wisdom for Machine Shop Sales and Marketing uncovered in the survey. Don’t miss it!
Let’s start by asking, “How much better are the Top Growers?”
On average, our respondents reported that their shop’s revenues grew by 23% from 2018 to 2019. That’s pretty good.
But, if we break it down into groups, here is what we see:
The largest group, about 30% of our respondents, reported no revenue growth. The second largest group, the Top 20%, were our Top Growers. They reported revenue growth from 35% to 100%. The middle groups represent the remaining half of the responses, and growth ranges from 1% up to 34%.
As you can see, the top players are phenomenal growers. Anyone would be happy to have a business growing at that pace.
What Did the Top Growers Do Differently?
Let’s check out each metric to see what the Top Growers did differently.
Were the Top Growers just bigger, with more employees?
Top Growers ranged from 1 to 102 employees with an average of 17 employees. The Overall Group ranged from 1 to 200 with an average of 16.5 employees. That’s awfully close, so we have to conclude number of employees does not matter.
How Many Salespeople do Top Growers have versus others?
Top Growers have 1 to 3 full-time Sales People with an average of 1.2. The Overall Group has 1 to 60 Sales People with an average of 2.8. Clearly you can have too many Sales People and it may drag down your performance.
Which Business Model do Top Growers use?
When it comes to Business Model, there’s a big difference in the two groups.
There are two business models:
- Job Shops make parts for others.
- Product Manufacturers are making products they sell themselves.
Let’s see which Business Model the two groups prefer:
Product Companies have a growth advantage over Job Shops who make parts for others. This isn’t surprising as the Job Shop business is well known as being highly competitive. That tends to drive down price and profit.
But the other thing is that you need more Sales People for a Job Shop business than a Product business. If you can sell your product on the web (more later), you may not need any Sales People.
How Good are Top Grower versus Overall Group Salespeople?
Let’s use the ability of Sales People to attract New Customers as our measure of sales performance:
The Sales People at Top Growers are more than twice as good at attracting new customers as the Overall Group.
What About Marketing Employees?
With or without Sales People, Marketing is an important function. Marketing gives Sales People their leads. It is the job of sales to close those leads into actual business. But Marketing gets the word out that you’re selling something and brings folks forward who may be interested.
It turns out the Top Growers are more than twice as likely to have a full-time Marketer on staff as the Overall Group. They tend to have just as many Marketers as Sales People. The Overall Group averages 3x as many Sales People as Marketers.
In part, the disparity is due to the Top Growers being more likely to be Product Companies rather than Job Shops. In many cases, Product Companies are selling directly from their web sites without need of Sales People.
How Many New Customers in 2019 vs 2018?
As we saw above, Top Growers have salespeople that are more than twice as good at finding new customers as the Overall Group.
On average, Top Growers added 31% more customers in 2019 versus 25% for the Overall Group. Now the numbers for revenue growth (Top Growers: 83% vs Overall Group: 29%) were much higher.
That suggests either the new customers were even larger buyers than existing customers or that the Top Growers also convinced existing customers to buy a lot more parts year over year.
It’s probably some of both.
Parts Volume vs Mix
What does the part mix look like? We all know that managing High Volume High Mix (making smaller quantities of more parts) is harder than High Volume Low Mix (making larger quantities of fewer parts).
With High Mix, you have to get it right the first time as you are not making enough parts to have much time for a learning curve. You need to invest more in getting the setup right from the get go. There’s little opportunity to optimize cycle times after the start.
Here’s what we found:
- Top Growers made an average of 430,967 parts in 2019.
- The Overall Group made an average of 314,344 parts in 2019.
So, the Top Growers are making 37% more parts than the rest of the pack. Also:
- Top Growers made an average of 55 SKU’s (distinct different part types) in 2019.
- The Overall Group made an average of 243 SKU’s in 2019.
Top Growers are able to focus on less than 1/4 as many parts and even more volume. This gives them a chance to hone the process to make any given part.
Put another way:
- Top Growers are making a run of 2,444 parts per part type.
- The Overall Group makes 1,987 parts per part type.
These numbers are a little less crazy than the SKU numbers. They show that some parts are made in very large volumes.
The takeaway is that Top Growers are looking for higher volumes on parts. It’s just easier work. Remember too that Top Growers are more likely to be making their own products than being Job Shops, which also gives them greater control over the part mix.
How do they think about Marketing Strategy?
We asked respondents to tell us how they think about Marketing. Answers fell into three possibilities:
- Marketing is unpredictable.
- Marketing is a process to be optimized.
- We are lost and need more help.
Personally, I have seen the most successful businesses including my own succeed because they approach marketing as a process to be optimized. Businesses with this mindset take time to learn. They take nothing for granted, and they measure results to determine what’s working and what isn’t. We live in a Digital Age where it is possible to operate that way, but it hasn’t always been so.
Still, I have been appalled to see influencers like the Editor-in-Chief of one of the big machine magazines proclaim that Marketing is unpredictable, but you have to do it anyway.
Here’s the thing, machining is unpredictable too. We do not produce perfect geometric shapes. We produce shapes that have errors that fall within tolerances.
Same with marketing. We can’t predict precisely what will happen, it’s true. But we can establish processes that deal with that and that produce a positive outcome for us. And the mindset required to do that is surprisingly closer to how machinists think than the Mad Men of Madison Avenue.
That’s a breakthrough realization that can not only provide comfort, but can enable you to go forth, market well, and conquer your market.
Let’s put that soapbox aside though and see how our Top Growers think versus the Overall Group:
While we have a few Top Growers who see Marketing as unpredictable or feel they are lost and need more help, the big contrast is this:
- The vast majority of Top Growers see Marketing as a Process to be Optimized. Bravo, guys!
- A smaller majority of the Overall Group feel lost and in need of help when it comes to Marketing.
I see this as an indication that you will greatly increase your likelihood of being a Top Grower is you learn to approach Marketing as a process to be optimized, even if that means getting that help so you’re no longer lost.
The trick is going to be having a laser focus on what your Marketing efforts are supposed to accomplish. Avoid vanity metrics like web site visitors. What you want to focus Marketing on is bringing in more qualified sales leads. Measure your Marketing based on that, and you should start to see growth in your business.
What’s your shop’s advantage over the competition?
Competition is alive and well in virtually every walk of life, but especially in business. It is rare that you’ll be able to sell a product so unique that it is unchallenged. Often, when that happens, the market isn’t ready for your product. It doesn’t know it needs the product, and by the time it does, competition will have sprung up.
This category is particularly important for Job Shops. If you’re building your own product, your shop’s machining advantage will matter, but not as much. That’s because you’re selling your product not your machining.
Here’s what we got:
We can see that Top Growers prefer not to compete on Cost or Unique Processes. Instead, they push their Industry Experience, Better References, and Expertise with Specific Materials.
Business School experts, like Michael Porter, will tell you that there are only a limited number of competitive strategies:
- You can be the cheapest.
- You can be the best.
- You can serve a niche that isn’t well served by the overall Cheapest or Best.
Our Top Growers are choosing to be the Best or to serve Niches such as specific industries or exotic materials.
Where do Shops find their customers?
Local sale sand marketing is different than covering much broader geographies. There are pros and cons to each. With local customers, you can call on them and rely much more extensively on word of mouth. With broad geographies you need to rely on more indirect methods to get the word out.
In this survey, we found that the Overall Group gets the vast majority of their business from Local Customers–69%. The Top Growers, OTOH, are much less reliant on Local Customers. They get 40% of their business Locally. In fact, 20% get 80-90% Local, another 20% get about a third of their business locally, and the rest don’t get any Local.
It seems being able to leverage the Internet and other methods for non-Local business is helping the Top Growers to grow more quickly.
Where’s Your Best Source of Sales Leads?
This is another slice on how shops are finding their customers. Getting a Sales Lead is the first step to getting a Customer. Here’s how Shops are finding Sales Leads:
Everyone’s favorite source of leads is word of mouth. Keep your customers happy. Make it easy for them to spread the word. Interestingly, Word of Mouth is even more important to the Top Growers than the Overall Group.
Are there ways to enhance Word of Mouth? Sure. You start by making sure you have as many hard core networkers in your Shop helping get the word out:
- Does everyone know how important word of mouth is?
- Is everyone equipped to help sell? Do they know why your shop is special? Do they have the right information on a business card to hand out?
- Do you pay a bonus, even a small one, when an employee brings in business?
Moving beyond that, your parts can be your word of mouth advertising. Consider some possibilities:
- How about making some machined trophies for local organizations? Make sure the trophy is super cool, that the organization will talk about who donated the trophies, and that it has your full contact info on the bottom.
- What’s something fun you can give your best customers that they will want to display in their office? Something everyone who visits the office will notice and check out. Something that will prompt conversation about your company.
You can come up with a million ideas like this to help get the Word of Mouth going.
Next up is Online Advertising. Again, the Top Growers are slightly more likely to use it. Of course once you’re advertising online you’re probably also looking into promoting via Social Media.
There are a number of folks who’ve created quite a presence online with YouTube videos.
Coming in #4 are Trade Shows. Trade Shows are an awesome place to do your homework on what your business needs to change to improve going forward. But they’re also an awesome place to meet a lot of people and help get your word out.
Number 5 is your web site followed by print advertising. The latter is prohibitively expensive unless you can make it work for a Locally-focused business.
After that, the other channels are hit or miss. There were some interesting entries in the “Other” category:
- Email newsletter to existing customers. Good one!
- Get outside consultants and others to resell your product.
What Pages are on Your Web Site?
75% of Top Growers have a web site, but only 55% of the Overall have one. If you don’t have a web site, it’s probably time to get one. Even Local businesses will find that Google has almost totally replaced the Yellow Pages for most people. If you don’t have a web site, you’re invisible to Google, and that can’t be good.
Here’s what type of pages to put on your Web Site:
Strong trend here!
The Top Growers are much more likely to include the following pages on their web sites:
- Pages that list your capabilities and machinery.
- Pages that show your people and their expertise. This is especially important if you’re selling on being more experienced (DUH! Yes, I am the master of the obvious, but it had to be said).
- Pages that focus on the application.
Customers are looking for machine shops for a reason. As the old quote goes, “People want a hole, not a drill.” The faster they can find pages on your site that resonate with their reason for searching, the faster you will make them a sales lead. Focus on that first and the rest is icing on the cake.
When asked to rate the effectiveness of their web sites on a 1 to 5 scale (1 being best, 5 being worst), the Top Growers rated their web site at 2.2 while the Overall Group rated their sites at 3.3. In general, the Top Growers have a lot more faith that their web sites are working well.
Where do you Advertise?
Given that Advertising was the #2 favorite tactic after Word Of Mouth, I was really curious to understand where shops are doing their advertising.
This chart tells the story:
What stands out is a lot more of the Top Growers are advertising in print, on YouTube, on Twitter, and on LinkedIn than everyone else. Interestingly, not so much Google and Facebook.
With advertising, it’s often better to try to advertise in places the rest of the pack hasn’t found yet. Especially in the digital world, advertising can be a bit of an auction. The fewer bidding for scarce ad spots, the further your budget will go.
Unfortunately, knowing where to advertise may not be enough. Both the Top Growers and Overall rated the effectiveness of their advertising almost identical. It’s somewhere between Somewhat Effective and Not So Effective At All.
What do you do to Improve Customer Relations?
Word of mouth has been the number one winner for marketing in this survey. But, good word of mouth requires great customer relationships. Here’s what shops are doing to improve their Customer Relations:
A number of big stand outs here in terms of what Top Growers are doing differently:
- They call their customers.
- They send customers a newsletter to stay in touch.
- Customers can check the status of their work online.
- They do Case Studies with customers.
Thank you notes, holiday cards, and events or receptions are non-starters for the Top Growers.
Got time today? Pick up the phone and call a customer!
Top 12 Tips for Machine Shop Marketing
Here are the top 12 things the Top Growers in our survey do differently than the Overall Group.
The biggest challenge for any business is finding new customers to grow their sales. Follow these tips to grow your business.
#1: Make and Sell Your Own Products
It’s easier to be a Top Grower making and selling your own products than being a Job Shop making products for others to sell.
If you’re currently a Job Shop, no worries. Come up with some products that are your own that you can sell in addition to your Job Shop business.
#2: Hire the Best Sales People
The best Sales People are more than twice as good as the average. Hold out for the best and keep improving the quality of your Sales People.
#3: Focus on Marketing at least as much as Sales
Marketing is the Honey that attracts sales leads. A Sales Person’s job is to close those leads and turn them into business. Without good leads, even the best Sales Person will under perform.
#4: Grow with New Customers and More Business from Existing Customers
Maximum growth comes from both New Customers and getting more business from Existing Customers. Push for both.
#5: Seek Out Higher Volumes of Fewer Parts
High Mix Low Volume is all the rage, but it’s darned hard to grow quickly making small batches of a lot of different parts. Our Top Growers had 1/4 as many SKU’s (distinct part types) as the average.
#6: Marketing is a Process to be Optimized
Top Growers see Marketing as a Process to be Optimized. That’s what Machinist’s and Manufacturing people do best. So stop thinking Marketing is unpredictable. Learn how to measure and optimizing the process. Stop trying to shoot from the hip–it never worked that well for the Mad Men of Madison Avenue either.
#7: Don’t Compete on Price. Be the Best or Choose a Niche.
Top Growers prefer to be the Best, or to serve a Niche. They do not want to be the Cheapest–it’s a tough slog and harder to grow. It takes more capital and a lot of other advantages.
#8: Top Growers don’t rely exclusively on Local Customers.
The Internet makes it possible for one man businesses to have Global Reach. Top Growers are not Local-only businesses. They bring in customers from all over.
Top Growers were only 1/3 as likely as the Overall Group to get the majority of their business Locally.
#9: Use Networking and Word Of Mouth
Everyone in the survey agrees Networking and Word of Mouth produce the best Sales Leads. But the Top Growers are better at it.
Figure out how to improve your Networking and Word of Mouth selling.
#10: Get a Web Site with the Right Pages on it.
Top Growers are much more likely to have a web site. And their web sites have pages that tell you their capabilities, expertise, and the applications they serve.
#11: Make your Advertising Impactful.
Top Growers don’t spread ad money everywhere. They focus on fewer ad venues and double down hard. They try to do something that everyone else isn’t doing nearly as much. For this survey, they doubled down hard on Print Advertising and YouTube.
#12: Call Your Customers.
We’ve seen how important Networking and Word of Mouth are. Both are helped tremendously by Good Customer Relations
We’ve also seen that Top Growers get more business not just from New Customers but Old as well.
Top Growers call and talk to their customers frequently. They send them an email newsletter.
Call Your Customers!
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Bob is responsible for the development and implementation of the popular G-Wizard CNC Software. Bob is also the founder of CNCCookbook, the largest CNC-related blog on the Internet.