Thumb Equivalency

Similar to an artist using a thumb to sketch portions of distant objects; businesspeople use "rules of thumb" to generate an image of future performance. Expectations are a method of planning goals more than a reality for many business owners, yet it is realistic enough many use rules of thumb to gauge progress. Common rules of thumb are: 1 in 100, 80/20 and six-sigma).

Everyone refers to the axiom, "1 in a 100." After applying to 99 jobs without success, the next interview will produce employment. This is also a common saying in sales and cold calls. If you pitched a sale to ninety-nine people the next person will buy the product. Generally true, because often people have similar service, don't need the product or lack money.

The greater purpose of 1 in 100 is creating an approximate number to benchmark progress. If a town has 10,000 people, after leaving a flyer on everyone's door you should have around 100 customers. The volume of advertisements is important because each person viewing the advertisement equals gaining a customer. However, this rule also implies a limit. In a world population of 6,000,000,000 a global company has maximized their customer base when reaching 60,000,000 customers.

After pitching to everyone in a limited area they expand when functioning on a positive level. Now they have costumer. According to the Pareto Rule of 80/20, "80% of your sales come from 20% of your clients." The other part of 80/20 refers to mishaps, customer problems and cancellations. Out of 100% customers 80% never experienced a problem, while 20% experienced a problem that is either resolved or the customer stops buying the products (cancels service). A customer service center addresses the issues related to the lingering 20%. 80% have the problems resolved, while the other 20% of a 20% (4 out of 100) go to a competitor or stop buying the product.

Only 1 out of 100 people are starting service, while 4 out of 100 are getting ready to cancel. Growing companies have an advantage because they have not reached capacity to gain customers from customers. A company reaching capacity, which has been in business a long time, is only replacing customers. They must continue marketing to maintain equilibrium.

The next level of maintaining a successful business is regulars. Regular customers are an important part of business beyond word-of-mouth advertising. A company with customers who received defective products or rude service loses more customers than they replace. This is why Kaoru Ishikawa developed the Fishbone Diagram. It diagrams inflows and outflows to isolate value added and non-value added systems. Bill Smith expanded on the concept into all areas of business. The manufacturing model is the easiest way of understanding the broader concept.

Six-sigma is a statistical term recognizing the higher and lower areas of an average population (the population represented by finished products). The sixth sigma is extremely abnormal. Exception quality is wonderful, yet exceptional defectiveness destroys reputations. If every level of a manufacturing process is elevated at a higher standard the overall average becomes higher to create better products and reduce defective products.

How is this done? It is done by testing product quality during several stages of the process. Think of making metal parts. The first step is to melt metal. Some metal is tested after it has cooled. This sample represents all the metal in the batch. If the test is good, the metal is cut and sized. If the test falls below standards, the supervisor or technician corrects the problem before melting another batch of metal.

A quality tester or machinist looks at a handful of metal parts to see if the machines and cutting tools are producing a desirable product. Employees looks at each part while removing rough edges before parts are boxed for shipment and then a quality looks at one out of ten boxes.

Every step of the process offers an opportunity to examine quality until only 3.34 pipes in 1,000 are defective. Dividing stages in a process also isolates problems within the system: buy new vat or refit a cutting tool. Finally one last quality tester picks three out of a hundred or a thousand finished pipes. The tested product should meet a set standard of excellence. If they do not, there is a problem.

Though Six Sigma improved quality all over the world, responsibility to check inventory is placed on the receiver. Additional costs for time and shipping cause issues over an extended period of time; therefore, after the customer accepts bulk goods the manufacture does not have to accept returns. Some companies have policies for deducting the cost of a defective part in the next shipment. It is best to identify defective parts before the delivery person leaves.

Basic rules of thumb assist businesspeople when gauging the efficiency and performance of a company. Starting out is difficult. Only talked to 99 people, talk to one more. Eventually someone will try the product or service, yet customers are a limited resource. If living in a town of 50,000 people having slightly fewer than 500 customers is realistic. Act accordingly accessing future profits. Having customers makes it easier to gain more customers when service is good; otherwise, slowly and steadily all your customers will be gone. Maintain regulars with quality. Regulars are a core of a company's success.

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