As I said in Wednesday's post, my first theory of why my sales were dropping last spring was that the world was going down the drain again, just as it had in 2008. Or maybe my corporate clients were feeling bullish and decided to invest in hiring instead of burning profits on fancy conference tables. I could find plenty of evidence for either idea in the papers. At any rate, I convinced myself that something had shifted in the outside world and there simply weren't as many shoppers looking for tables.
Our sales for the first quarter were $542,555, below my target of $200,000 a month but better than the same period in 2011. Here are the numbers for the second quarter:
April: $146,677
May: $114,042
June: $ 62,000
Total: $322,719
The total was bad, but the trend was worse. Those June sales were our lowest since August 2008. And of course, the sales slump did serious damage to my supply of working capital.
Most of our sales are structured as three payments: a 50 percent deposit and a 35 percent preshipment payment with the balance due 10 days after delivery. In other words, half of the cash comes from closing the deal, the other half from completing the job and delivering it. As the cash from incoming orders disappeared, I kept the factory running at full speed, so that we would continue to get the completion payments. This meant that my expenses were not shrinking.
An alternative strategy that makes sense, theoretically, is to cut variable expenses in line with the sales drop. But the only way I have to do this is to lay off people. Good workers are hard to find, though, and I'll do almost anything to avoid losing them. Throu ghout the spring and summer, even though our sales didn't merit it and our backlog was disappearing, I kept all of my people on payroll - with a single exception. There's one person I can shortchange without worrying that he'll quit and find a better job, and that's me. I stopped my own paycheck in April.
Having concluded that demand was shrinking and that I'd need to make a greater effort to find more work, I took another look at my advertising budget. One of the interesting features of AdWords is that you can model how many clicks per day your ads will get at various budget levels. There's an analysis screen where you can punch in a daily spending total and see how well your campaign will perform. In general, spending more money brings more clicks. But as you get to the upper portions of the total available traffic, each additional dollar buys you fewer clicks. For instance, it might cost you $500 to get 1,000 clicks, $1,000 to get 1,500 clicks, and $2,000 to reach 1 ,750 clicks.
Not only does Google tell you exactly how many clicks are available for every level of spending, it also tells you how many clicks you are missing. And it tells you what level of spending - the maximum recommended amount - it would take to buy the rest of the clicks. What it leaves out is that the additional clicks you buy may not be of sufficient quality to result in additional sales. Because I've always had concerns about this, I've set my daily budgets at numbers that I feel I can afford. These have tended to be about 30 percent less than Google's maximum recommended amount. But that still gets me about 80 percent or more of the available clicks, and that seems to me to be a decent value.
Google wants people to buy more clicks, so little warnings appear on the control panel if your daily budget is spent before you buy all of the available clicks. The warnings let you know that you will get no more clicks that day. As spring wore on, I started to s ee those warnings with greater frequency and earlier in the day. (I tell Google to run my ads weekdays from 8 a.m. to 10 p.m. Eastern time, which covers business hours for the continental United States.) Curiously, we had not experienced a drop in clicks that matched our drop in sales - on the contrary, impressions and clicks for my ads had increased in the second quarter. I decided to take some of the money I was not paying myself and increase my AdWords budget. In late April, I raised my daily spend from $475 to $600.
Here's what happened: Google happily took my money and delivered more impressions and more clicks on my ads. But as for calls and sales, things kept getting worse and worse. Now I was ready to panic. We were running out of work and cash. And I was still telling myself that I was seeing a retraction in spending from my customers. I still believed I was being crushed by forces outside my control.
Friday: A Wake Up and a Fix.
Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.
