Can Chasing Small Customers Lead to Big Profits? The New York Times, best small
Can Chasing Small Customers Lead to Larger Profits?
By ADRIANA GARDELLA APRIL 27, 2011
Darren Robbins and a partner founded Big D Custom Screen Printing in 2007. In its first year, the company, which is based in Austin, Tex., and specializes in printing T-shirts, recorded sales of $325,000 and a small loss.
THE CHALLENGE To become profitable, Big D must determine whether to cater to customers with large printing orders or small.
THE BACKGROUND Mr. Robbins, a former full-time musician who still plays in a band, was nostalgic for the multicolor tour shirts of his youth, which he described as “works of art.” He said he was appalled by the one-color shirts sold at today’s shows. He was also disappointed by the quality of shirts created by some of Austin’s many screen printers and said he could do better.
With that goal, Mr. Robbins and his partner, who worked for Capitol Records, invested a total of $225,000 to open Big D. The division of labor was clear. “I was a natural-born customer-service geek, and he was a natural-born salesman,” said Mr. Robbins, who resolved to take care of the customers his partner brought in. “We wanted to be one of the big boys.”
As his partner traveled the country trying to win accounts, Mr. Robbins ran the shop, frequently declining business from potential customers who requested small orders. Mr. Robbins, 44, who has a background in ad agency account management, said that turning away business kept him up nights. He wanted every call to end with a sale.
By the end of its first year, Big D had grabbed a few big accounts — local video game and record companies that placed orders for 5,000 to 15,000 shirts. But when the shop was not cranking out large orders, it sat idle. Mr. Robbins said his partner feared that small orders would prevent Big D from handling bigger jobs should they come in. But given his ad agency experience, Mr. Robbins said he was used to demanding clients and short deadlines. “With effective scheduling, you can pretty much accommodate any customer,” he said. Following the lead of his competitors, he charged more per shirt for the smaller orders he did take.
THE OPTIONS At first, Mr. Robbins and his partner agreed on strategy. With their industry contacts, they said they believed they could land accounts from major bands. Focusing on high-volume orders made sense to them in part because Big D’s suppliers offered a price break on large quantity T-shirt orders.
But the partners did not realize that most bands were locked in to long-term contracts for their tour shirts. Given that, Mr. Robbins started to wonder about the strategy of chasing down high-volume clients, particularly when he had so many smaller prospects knocking on his door. But, he said, his partner saw no point in accepting orders for one or two shirts. His partner continued to believe big orders were crucial to profitability and that he could best win those accounts by conducting in-office presentations for corporate prospects across the country.
THE DECISION After a year in business, Mr. Robbins threw an anniversary party in April 2008 to thank his employees for their dedication. His partner, however, opposed the modest celebration because its cost meant the difference between breaking even and showing a loss on Big D’s first-year sales. This disagreement highlighted the increasing tension between the partners’ growth philosophies.
Determined to accept smaller orders, Mr. Robbins bought out his partner around the time of the party. The split was amicable, Mr. Robbins said, with his former partner breaking even on the sale and returning to the music business. And then the economy crashed. “Almost overnight, companies tightened their belts,” Mr. Robbins said.
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At that point, he decided that no order was too small. He would find a way to take all business, even an order for a single T-shirt. He knew there would not be a lot of competition from the other local screen printers for the small orders. “I noticed they weren’t in a huge hurry to fit them in,” he said.
Big D began catering to those with small needs, including a Houston comedian who wanted 20 shirts. Once he made a decision to take all orders, Mr. Robbins reassessed his costs and determined that he could make a profit on the smaller orders, even without charging the significant markup that many of his competitors charged — a markup that effectively discouraged customers from placing small orders. Instead, Mr. Robbins lowered prices on smaller orders, bringing them more in line with the per-shirt price for large orders. Big D charges $5 per shirt for 40 to 499 white T-shirts printed with one color, while the charge for an order of 1,000 or more shirts is $3.50 per shirt. He was able to take this step and still make a profit because, regardless of order size, Big D’s costs to print the shirts were not that high. Because of the quantity discount, the company would still make a greater profit on its large orders, but Mr. Robbins said he decided to “be as fair as possible” on the smaller orders. His prices for one shirt, a “micro-run,” begin at $25.
He also eliminated set-up charges, a common fee charged by printers, and put his prices on Big D’s Web site, mostly so he did not have to memorize them. “Many of our competitors make you come to them for a price quote, adding a day to the process,” Mr. Robbins said. He hoped that Big D’s transparent pricing would become another way for the company to differentiate itself.
“The competition — and my partner — thought I was nuts,” he said. But Mr. Robbins said he understood his costs and could become profitable “without gouging people.”
WHAT OTHERS SAY Carol Adams, owner of TorlyKid, (a children’s clothing store: “If a business focuses solely on fewer large accounts, and one of those disappears, the consequences can be devastating. We try to expose as many people as possible to our business, and that exposure can only come by nurturing the smaller clients as well as the large ones.”
John Olson, chief executive, Graystone Industries, a pond and fountain supply business: “The partners should have targeted midsize accounts, handling larger orders when they arose and smaller ones to fill gaps. Mr. Robbins limited himself to a niche within a niche with little upside potential. He can run profitably and perhaps make a nice living, but the company won’t be efficient.”
Michael Araten, president, K’NEX Brands, a toymaker: “Like Mr. Robbins, Wal-Mart, Zappos and Amazon.com focused on small customers and transparent pricing, while making it easy for them to get customized products. Small orders pay for the day-to-day. Large orders are incremental profit that leverage Mr. Robbins’s expertise. I’m certain he can have it all.”
THE RESULTS To offer your thoughts on Mr. Robbins’s decision, go to the You’re the Boss blog at nytimes.com/boss. Next week, on the blog and in this space, we will tell you how things are working out for Big D.
A version of this article appears in print on April 28, 2011, on Page B5 of the New York edition with the headline: Can Chasing Small Customers Lead to Larger Profits?. Order Reprints | Today’s Paper | Subscribe
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