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I was working on an old NC tape machine a long time ago when I decided to teach myself how to program an NC machine. I thought I had everything figured out.

I was very proud of myself. I wrote my code out on paper, double checked it 3 times, and loaded it in the machine. I looked around the shop with a sly smile hoping the boss would see my great accomplishment when I hit the start button.

Ah Good, he was coming my way.

So with overwhelming pride I quickly hit the start button just as he walked up to ask what I was doing.

And then as the machine whirred into action, I smugly turned around and said “hey what’s up boss?”

He watched for a while, smiled and then asked, “it’s 8:30 why is your machine just sitting there with the spindle running, not doing anything?’

WHAT? When I looked back at the machine I was mortified to see the tool was just sitting above the work piece doing nothing.

I learned an important lesson about Planes that day. I learned that NC machines are easy to confuse. I learned how easily I could embarrass myself.

So what went wrong?

Code Data

Code: G17, G18, G19
Modal: Yes
Group: 02
Action: Plane Selection
ANSI Std: Yes
Requirements: None
Options: Required for programming arcs and canned cycles
Conflicting G Codes Only one of the codes can be active at a time but any can be used as often as necessary in a program.

Description and How to Use G17, G18, G19

I failed to understand the importance of plane selection.

In order for an NC or CNC machine to properly interpolate an arc or use a canned cycle, it must know on which it is doing the work.

There are three planes use to program CNC machines. They are:
The XY or G17 Plane
The XZ or G18 Plane
The YZ or G19 Plane

Remembering these planes is pretty simple.

• Take a small box and set it in front of you.
• On the top of the box draw an L and a label the vertical axis Y and the horizontal axis X and write G17 in the center.
• On the front and back of the box draw an L and a label the vertical axis Z and the horizontal axis X and write G18 in the center
• On the right and left sides of the box draw an L and a label the vertical axis Z and the horizontal axis Y and write G19 in the center

This is the basic set for a vertical milling machine. You can tell from this, if you are milling an arc:

• on plane parallel to the top of the box, you use a G17.
• on a plane parallel to the front or back of the box, you use a G18
• on a plane parallel to the right or left side of the box, you use a G19

To learn how to use the G02 and G03 to cut arcs click here .

Like G94/G95 and G20/G21 The plane selection command is usually set at the beginning and not changed again unless a canned cycle or arc is to be cut on a different plane than the one currently active.

The default setting for most Vertical Milling Machines (VMC) is G17. For most lathes, the default setting is G18, because most lathe work is performed in the ZX Plane.

Learn from my mistake. If you are working with various planes, before you invite your boss over to show off, make sure you have told the machine the correct plane on which to work.

While it won’t do much for the rattle or the annoying conversation, the G04 will certainly give your machine reason to pause.   

Code Data

Code: G04  
Modal: No
Group: None, non-modal command
Action: Suspends all axis motion for a prescribed amount of time.
ANSI Std: Yes
Requirements: X or P word to tell how long to dwell
Options: None
Conflicting G Codes Any other G code in Group 05   

Description

Look CNC machines don’t make money if they are not moving. . . why in the world would I want to make mine just sit for a few seconds?   

There are a number of reasons. 
I am not even sure if these reasons are valid any more because CNC equipment has improved so much over the years, but here are some of the ways G04 had been useful to me in the past:  

• To stop axis movement for a second or two until the coolant was up to pressure 
• To insure the spindle was up to speed before entering a cut, particularly useful on older lathes when moving from large diameters to smaller diameters where greater speed was need to maintain SFPM.
• To insure the tailstock or other hydraulic features were fully up to pressure before the axis started moving. 

Do NOT ever use G04 for this!

Never use G04 to build in time for an operator to manually change tools or parts, clear chips or anything where the operator will be hurt when the machine starts moving.    

How to Use G04

G04 is a non-modal command so it must appear on the line where you want the machine to pause. Once the pause time has expired the machine will continue processing the remainder of the program.  

To tell the machine how long to dwell you have two options.   

1. Use the X word to tell the machine how long to dwell in seconds. For example G04 X5 will tel the machine to suspend axis movement for 5 seconds  
2. Use the P word to tell the machine how long to dwell in milliseconds. For example G04 P1000 will tell the machine to suspend axis motion for 1 second

Some G04 Examples

• G04 X1 M08 – dwells for 1 second while coolant comes on.  
•  G04 P1500 M03 – dwells for 1.5 seconds while the spindle gets up to speed 
•  G04 p500 – dwells the tool for .5 seconds

So wouldn’t it be nice if you could just shout G04 and the rattles and distractions in you life would stop for a few seconds?   You might try it sometime, but better you use it exclusively to talk to your CNC machine.

Your son or daughter wants to borrow the car. Don't want to know a few basic things like where they are going, how they are going to get there, when they will get there, when they are coming back?

Well, guess what, without knowing it, you understand interpolation.

Ok, What does this have to do with CNC Programming?

Everything.

When you send a tool into the workpiece you might as well be sending a teenager into a strange city. The tool needs clear instructions about where to go, how fast to get there and so on.

Imagine you are asking the machine to move 10 inches along the X axis but only 2 inches along the Y axis. Let's say you programmed a very safe 10 inches per minute feed rate.

If both axis move at exactly 10 inches per minute, it will take the machine 1 minute to move the full distance to the X destination, but only 12 seconds to make the Y move. Instead of an 11 degree angle, you will have a dog leg.

Something like this.
   ___________________________
 /
/
The above is an example of simple positioning, much like you would expect from a G00 code.
   
Whether commanding linear interpolation (G01) or circular interpolation (G02/G03) you are telling the machine that you want ALL axis to arrive at the programmed point at the exact time.
 
If you are programming an angled line and one axis leads or lags behind one of the other axes, you will not have the angle you programmed.

The same is true with arcs. If one axis arrives late you will not have a good arc.

A topic for a future article will discuss accuracy of CNC machines and how backlash and lead/lag error can diminish the accuracy of your machine.

So next time you give the keys to your CNC machine and send it on and errand, know that because of its ability to coordinate the moves of the axes via interpolation, the tool will go exactly where you tell it to go in exactly the right way.

Now, if only we could teach our children to interpolate our thoughts.

 The salary difference between top paid and low paid CNC operators can be significant. Learn why understanding canned cycles can be an important step towards a bigger paycheck

What are Canned Cycles?

Canned cycles are special routines built into every CNC control. Whether it is a mill, router, 5 axis grinder, lathe or whatever, the control will have canned cycle capability.

These routines enable the operator or programmer to accomplish with one line of code what it could take 10 or more lines of code to accomplish without the canned cycle.

Canned cycles on a CNC mill will control things like drilling cycles, boring cycles, spot facing and so on. On a CNC lathe, the canned cycles will control roughing, finishing, grooving and threading routines.

Why should operators learn and use canned cycles?

Whether you have your own shop or you work for someone else, the bottom line is that, in order to get paid, parts need to ship. The longer it takes to get the parts out the door, the higher the cost incurred by the shop.

As you become familiar and proficient with the use of canned cycles, you become more efficient and ultimately reduce the time it takes to ship parts. The more you efficient you are the more valuable you are.

Another reason to learn canned cycles is because effective use of canned cycles can help reduce scrap and rework. If you not only make parts more efficiently and reduce scrap and rework along the way, the more valuable you are.

So how do canned cycles accomplish these valuable tasks?

Imagine you are making a part on CNC mill that has 15 holes that need to be drilled, counter bored and tapped.

Upon inspecting your first part, you find an error. All of the holes are drilled too deep.

Without canned cycles, you would have to make a minimum of 15 changes to the program; one for each hole. If the change in finished depth is significant, you may also have to change all the peck and retract programming for each hole. Now, you may be talking about 30, 60 or more changes.

The scrap reduction is a matter of odds. Every time you make an edit, you chances of an error increase. It is a lot easier to make one simple change that weeding through dozens or hundreds of lines of code to make 60 changes.

An operator that can make fast, scrap free edits is going to be more valuable than one who can’t.

Don’t wait to learn how to use canned cycles.

Study the programming manual that came with the machine. Or, for a more in depth discussion on the subject, check out 7 Easy Steps to CNC Programming . . . A Beginner’s Guide.

WARNING:

While canned cycles are a huge benefit to CNC operators and manual programmers, they are the bane to the existence of programmers that rely on CAM systems to create CNC code.

Programmers using CAM systems like Unigraphics, MasterCAM, GibbsCAM and so on rarely set the software to take advantage of canned cycles. There is a lot to be discussed regarding the differences between manual and CAM programming, but that will have to wait for a future article. Suffice it know if you work in one of these CAM driven shops, you may not see a lot of canned cycles.

However, not all programs come from the office. Often you may be called upon to quickly make a part with out involving the programming department. You will be a valuable asset if you can take on that challenge and quickly program the part using Manual Data Input (MDI) and canned cycles.

In Summary:

• Canned cycles can improve efficiency and reduce scrap.
   
• Your value as an employee will increase if you are more 
      efficient and help reduce scrap and rework. Canned cycles are
      valuable tool for you master.
• Larger shops and shops dependent upon CAM systems for CNC programs typically do not use nor encourage the use of canned cycles for most jobs. But when you come to the rescue and quickly and accurately program a simple job that can’t wait for office programming, you get to be the hero.

One of the simplest, most straight forward discussions on the topic can be found in my book 7 Easy Steps to CNC Programming . . . A Beginner’s Guide. This book is used by a number of vocational schools around the country as the primary text for an introduction to CNC programming.

This has been the subject of many debates. There are a couple of schools of thought.
 
At one time, and maybe still today, machine tool salesmen sold CNC machines on the notion that they were so simple to operate a “trained orangutang” could operate them. Consequently, many shops and CNC departments are run is such a way that the machine operator is just a button pusher.
  
In other shops, management looks at CNC machines as some of the most expensive equipment in the shop and they want only the best machinists running them.
 
Both schools of thought have their advantages and disadvantages. And, each type of operation has a different set of requirements.
 
A CNC operator shop that depends exclusively on “operators” rather than machinists, requires more supervision, better programmers, and often specialized setup people. These shops also need to look for different qualifications in their employees. If your goal is to rely on lower cost operators then, don’t hire people that aspire to be programmers, managers, salesmen, etc., unless you plan on moving them up in the company fairly quickly. Instead, find people who are conscientious, want to do a good job, like structure, are more interested in their personal life than their career. These operators must carefully and reliably follow written and/or verbal instructions.
 
To be successful in this operation, management must also have a strong supporting staff that can provide fast, quality set ups and error-free programs.
 
Since the operator may not be a strong source of ideas regarding process improvement, you’ll need a very competent and attentive supervisor, programmer or manufacturing engineer to monitor the machines. No shop can survive by doing things the way they did them five years ago. New tools, grades of carbide and work holding methods serve to improve efficiency and reduce machining times.
  
Some advantages of the CNC operator shop include:

• Lower labor costs.
• It’s easier to find new employees.
• Operators tend to do what they are told and do less second guessing.
• When properly selected, operators tend to be more content doing long production runs.
• Lower training costs and shorter learning curves.

Some disadvantages of the CNC operator shop include:

• Operators typically require more support from indirect labor such as programmers, Manufacturing Engineers, supervision etc.
• Problem solving usually involves more people and time as the operator waits for the “experts” to solve the problem.
• Often operators have an “it all pays the same” attitude and have less motivation to improve processes.
• Often operators are less comfortable with change and don’t see the value in trying new methods. They may complain, “I don’t see why we have to keep changing the tool, the old one was working well enough.”
• As operators become familiar with particular machines and jobs, they tend to accumulate tools, notes and knowledge that do not get shared.
• The ability of your shop to meet production schedules may suffer if the operator gets sick, takes a vacation or leaves the company.
• Machine setups are dependent upon the availability of the setup personnel. Machines can sit idle while set up people are attending to other machines.
• The shop may have greater tooling expenses if it is required to provide all the necessary tools and inspection equipment for the operator.
• A CNC machinist shop that uses machinists that are expected to program as well as operate the machine need to look for different qualities in their employees.
• Like CNC operators, CNC machinists need to be conscientious, and have a strong desire to do a good job. Additionally, the best machinists love their work. They like the challenge of making intricate shapes out of raw stock. They have an attitude of “anything can be done, I just have to figure out how to do it.”

Some advantages of the CNC machinist shop include:

• Machinists typically require less support from indirect labor such as programmers, Manufacturing Engineers, supervision, etc.
• Qualified machinists can be a greater resource upon which to draw for figuring out how to run new jobs or improve processes.
• Machinists usually have their own tools and inspection equipment which can further reduce expenses.
• Machinists are often more flexible when asked to try new processes.
  Machinists are more likely to bring in ideas from outside reading or interests.

Some disadvantages of the CNC machinist shop include:

• Machinists earn higher wages.
• Machinists are harder to find and keep.
• Some machinists resist new ideas if those ideas don’t match their previous experience or skill level.
• Some people who present themselves as machinists, frankly, are just operators.
• Some machinists who claim to have “x” years of experience really only have one year of experience repeated “x” times. So, while they have put in the years, they have not had the variety of experience necessary to justify their salary expectations.

This article was taken from 7 Easy Steps to CNC Programming, Book II, Beyond the Beginning 

Having worked most of my career in production environments, I have observed first hand, the high cost and inefficiency associated with economic down turns.

When business experience a slow down, the employees slow down. Not necessarily on purpose, it just happens. For the employee as things get slow, the remaining work fills the vacuum. There is something very psychologically uncomfortable about seeing work come to an end and I think we all experience some time distortion. What once was easy to accomplish in an hour can easily fill 2, 3, 4 or more hours and we convince ourselves how busy we are.

In a production company, it is often said, there is cost, delivery and quality . . . Pick two. In other words, you can have it fast and cheap but quality will suffer. Or you can have quality and delivery, but it is going to cost.

Fulfillment and delivery is a cornerstone of a production environment. So when employees slow down for fear of running out of work, delivery suffers and customer satisfaction falls. This can be a death nail for any company that has competitors.

To Survive in a Slow Economy, You MUST Deliver Better than Expected Quality, On-time
With the additional pressure on delivery, how do you keep employees focused on getting the job done quickly? Here are some things that have seen work in the past.

1. Focus on Productivity not Hours
   In one shop where I was the CNC Programmer / Dept Supervisor, the owner held brief meetings every day to keep us informed. In essence he said, “regardless of when work runs out, you will be paid until the end of the week. If however you are not productive, you will be laid off.” Our job was to get quality product out the door as on or before schedule. If we ran out of work on Wednesday, we would still be paid through Friday. And Ed always found us something to do. Clean the machines, repaint the safety lines on the floor or whatever.Interestingly, somehow work always trickled in and I think it was due in large part to our ability to deliver on time.
    
2. It is NOT Busy Work if it is Important
   Too often, with good intentions, managers and supervisors assign busy work to employees with out making the work important. People need to feel that their work is important and contributing. When just handed a broom, they are often offended, see it as stupid, do the task with low quality, and go home frustrated.Find ways to communicate how important the busy work is. Cleaning, painting, etc make the work environment more enjoyable, and more safe. Ideally, if you see a slow down coming in the future, start people on the alternate activities while still busy, stress the importance of it. Then when the slow down hits, put more people on tasks all the while “thanking” the slow down as an opportunity to complete these important tasks.
    
3. Don’t Let Quality Suffer
   One bad side effect of a slow down is quality often suffers, when by all accounts it should improve. Here is an example from my own experience.I worked my way through my first few years of college working at pizza places. And, if you have ever worked in a restaurant, you know you have peak and slow periods almost every day. In my experience as an employee and as a customer, food and service quality typically suffer during the slow periods.Well one very slow night at the Western Drive In in Denver, someone came in and ordered an 18″ anchovy pizza. I hopped right on it and then got distracted talking to my coworkers who were standing around. I burned the Pizza and had to remake it. Then I made the same stupid mistake and burned the second pizza. Finally the 3rd pizza was successfully prepared, but it was so late we gave it to the customer for free and the delivery boy, my best friend, did not receive a tip.

    

   That was my first experience of the high cost of slow business.

4. Invest in Training for the People you Hope to Retain
   Don’t get me wrong. When things are slow, cash flow and profitability suffer. So sending star employees around the country to train may be out of reach. But the best employees are typically the ones with the greatest understanding of the entire operations. Here are some things you can do that give employees better overall understanding of your company, gives them some great training and gives them a real sense of value:

    

   • Bring them into the office an train them on the front office operations, filing, billing, accounting, etc.
   • Train them in the basic business that are important to your success. Teach them about Cash Flow, Break Even, Contribution Margins, Operating cost, etc.
   • Bring them into the office and involve them in a SWOT analysis. Find out how they perceive the company, you will learn a lot, if you are open minded.
   • Take employees on sales calls, show them how hard it is to get new business and help them realize the importance of cost, delivery, and quality.
   • Give them responsibility and accountability for their “busy work’ tasks. For example, If you bring customers through, introduce them to the employee and say “This is Joe he is responsible for” . . . shop cleanliness, painting or whatever.
      
5. Remember, it is an end result you are paying for, not hours.
   This is hard for a lot of business owners and managers, but you are not buying hours. You want X amount of quality widgets, a Y response to marketing efforts, audit proof bookkeeping or whatever. Why get hung up on the perceived hourly wage if you get the results you need at a fair price? If your people improve, get more efficient and get the tasks done faster and better, don’t punish them. Encourage them for their great work and help them find other interesting things to do in the company that utilize their talents.

Even Though Profits May Be Small or Non-Existent
Depending on the nature of your operations you must keep in mind contribution margin. If you have a large capital expense or fixed cost, you have to do everything you can to cover that cost. I have seen companies turn down jobs because they could not make a profit or the price does not cover their “burden rate”. That is understandable, but consider this.

Suppose you have fixed costs of $10,000 per month. Doesn’t it make sense to accept a job that covers variable cost plus some % of gross margin? Every dollar earned in excess of variable expense contributes towards paying fixed costs. That can mean keeping key employees productive and the doors open.

Economic slowdowns are painful enough with out losing control of motivation, production and quality. And slowdown happen, smart managers anticipate an plan for them and turn them into opportunities for business improvement. When business is slow for an industry, competition gets fierce, your survival will depend upon keeping customers happy with outstanding delivery, exceptional quality and competitive pricing . . .customers will demand all three, not just two.

I have found that the best programmers  have an attention to detail not unlike that of an accountant.  They are meticulous,  and feel the need to check their work thoroughly. They are extremely detail oriented.

A programmer should have strong communication and leadership skills.  A solid  relationship between the programmer and the operators, based on mutual respect, is essential. If there is disparity between the operators and a programmer, efficiency suffers. If operators trust the programmer, then they can concentrate on the setup and operation of the machine.  If they do not, a lot of time is wasted as they dry run and nit pick everything the programmer does.

"Programmers do not need to be machinists.  They do however, need to understand machining concepts such as safety, speeds, feeds, tool geometry, part set up, and so on."-

You may be asking yourself, if programmers need to know all that machining stuff, doesn’t that make them machinists?  Of course not.  Knowing the concepts does not make one a machinist any more than memorizing a book on race car driving makes a person a race car driver.

This may sound counterintuitive, but some of the best programmers have what I call a lazy tendency.  These programmers don’t like doing unnecessary work or extensive amounts of repetitive work.  So their code tends to be more compact, cleaner if you will.  They also find ways to have a computer or the machine control do the repetitive tasks.  This is especially true of programmers that use Computer Aided Manufacturing (CAM) systems such as Unigraphics, DP Esprit, MasterCAM, etc.

An essential quality of excellent programmers is consistentcy. Excellent programmers create programs that, as much as possible, have the same structure, use the same tools and tool locations, and so on.  This means the operator can depend on the programmer which frees the operator to focus on machining the part, rather than trying to figure out what the programmer is trying to do.

This goes back to the concept of laziness.  If the programmer takes advantage of work done before, the programs have the same look and feel for the operator.  This consistency reduces setup and dry-run times, reduces learning curves and builds confidence in operators.

Another important quality of the best programmers is a desire to go out on the shop floor and see their work in action.  They do not have any fear or disdain for being at the machines.  Nor do they fear or object to feedback from the operators about ways to improve their programs.

Excellent programmers also have a tendency toward perfection.  They are not happy doing something ‘half-assed.’ The downside of this is that production schedules, programming backlogs and shifting priorities often do not leave the programmer with enough time to satisfy their quest for perfection.  So, in addition to a desire for perfection, the best programmers have the ability to make programs that, while not perfect, get the job done on time.  They will also want to go back and improve them better when they have enough time.

This has been the subject of many debates. There are a couple of schools of thought.

At one time, and maybe still today, machine tool salesmen sold CNC machines on the notion that they were so simple to operate a "trained orangutang" could operate them. Consequently, many shops and CNC departments are run is such a way that the machine operator is just a button pusher.

In other shops, management looks at CNC machines as some of the most expensive equipment in the shop and they want only the best machinists running them.

Both schools of thought have their advantages and disadvantages. And, each type of operation has a different set of requirements.

A CNC operator shop that depends exclusively on "operators" rather than machinists, requires more supervision, better programmers, and often specialized setup people. These shops also need to look for different qualifications in their employees. If your goal is to rely on lower cost operators then, don’t hire people that aspire to be programmers, managers, salesmen, etc., unless you plan on moving them up in the company fairly quickly. Instead, find people who are conscientious, want to do a good job, like structure, are more interested in their personal life than their career. These operators must carefully and reliably follow written and/or verbal instructions.

To be successful in this operation, management must also have a strong supporting staff that can provide fast, quality set ups and error-free programs.

Since the operator may not be a strong source of ideas regarding process improvement, you'll need a very competent and attentive supervisor, programmer or manufacturing engineer to monitor the machines. No shop can survive by doing things the way they did them five years ago. New tools, grades of carbide and work holding methods serve to improve efficiency and reduce machining times.

Some advantages of the CNC operator shop include:

• Lower labor costs.
• It’s easier to find new employees.
• Operators tend to do what they are told and do less second guessing.
• When properly selected, operators tend to be more content doing long production runs.
• Lower training costs and shorter learning curves.

Some disadvantages of the CNC operator shop include:

• Operators typically require more support from indirect labor such as programmers, Manufacturing Engineers, supervision etc.
• Problem solving usually involves more people and time as the operator waits for the "experts" to solve the problem.
• Often operators have an "it all pays the same" attitude and have less motivation to improve processes.
• Often operators are less comfortable with change and don’t see the value in trying new methods. They may complain, "I don’t see why we have to keep changing the tool, the old one was working well enough."
• As operators become familiar with particular machines and jobs, they tend to accumulate tools, notes and knowledge that do not get shared.
• The ability of your shop to meet production schedules may suffer if the operator gets sick, takes a vacation or leaves the company.
• Machine setups are dependent upon the availability of the setup personnel. Machines can sit idle while set up people are attending to other machines.
• The shop may have greater tooling expenses if it is required to provide all the necessary tools and inspection equipment for the operator.

A CNC machinist shop that uses machinists that are expected to program as well as operate the machine need to look for different qualities in their employees.

Like CNC operators, CNC machinists need to be conscientious, and have a strong desire to do a good job. Additionally, the best machinists love their work. They like the challenge of making intricate shapes out of raw stock. They have an attitude of "anything can be done, I just have to figure out how to do it."

Some advantages of the CNC machinist shop include:

• Machinists typically require less support from indirect labor such as programmers, Manufacturing Engineers, supervision, etc.
• Qualified machinists can be a greater resource upon which to draw for figuring out how to run new jobs or improve processes.
• Machinists usually have their own tools and inspection equipment which can further reduce expenses.
• Machinists are often more flexible when asked to try new processes.
• Machinists are more likely to bring in ideas from outside reading or interests.

Some disadvantages of the CNC machinist shop include:

• Machinists earn higher wages.
• Machinists are harder to find and keep.
• Some machinists resist new ideas if those ideas don’t match their previous experience or skill level.
• Some people who present themselves as machinists, frankly, are just operators.
• Some machinists who claim to have "x" years of experience really only have one year of experience repeated "x" times. So, while they have put in the years, they have not had the variety of experience necessary to justify their salary expectations.

If you have not read Chip and Dan Heath's outstanding book Made to Stick: Why Some Ideas Survive and Others Die, perhaps now is the time.

The book opens on page 3 with a compelling story about kidney harvesting. It is a hoax, but brilliantly illustrates the point of why some stories stick. For fear of violating copyright, I will not reprint the story here, but instead use one relayed to our CEO.

-------------

I highly recommend a book by Mark Joyner titled “The Irresistible Offer: How to Sell Your Product or Service in 3 Seconds or Less.” This book was an easy read and at first blush, I thought well that’s an interesting idea. In retrospect, the book really started me thinking. The short version is as follows:

The Core imperative in business: Make an offer. Quid Pro Quo. I will give you X in exchange for Y. Do this effectively and you can quickly weed out the players from the disinterested time wasters.

Addressing the unspoken dialog: According to the author, when a person picks up a marketing piece, meets a new person or is on the receiving end of a sales call, there are 4 questions in their mind.
, finding an honest irresistible offer is . . .well . . . imperative.

1. What are you trying to sell me?
2. How much?
3. Why should I believe you?
4. What’s in it for me?

We basically have a person’s attention for 3 seconds and must address these questions or we will lose them. The first three questions address the buyer’s logic, the last question is emotional.

The Irresistible Offer: “The Irresistible Offer is an identity-building offer central to a product, service or company where the believable return on investment is communicated so clearly and efficiently that it’s immediately apparent you’d have to be a fool to pass it up.” – Mark Joyner

Mark’s 3 favorite Irresistible Offers:
Domino’s – “30 minutes or less . . . or it’s free.”

Federal Express – “When it absolutely, positively has to be there overnight.”

Columbia House – “10 CDs for 1 Cent.”

All of these meet the criteria of an identity-building offer central to a product, service or company where the believable return on investment is communicated so clearly and efficiently that it’s immediately apparent you’d have to be a fool to pass it up.

There are three basic elements to the Irresistible Offer:

1. High Return on Investment (ROI)
2. A Touchstone
3. Believability

If you have all 3, you have an outstanding offer. What you lack in one area must be made up in the other areas. For example, Domino’s pizza was not perceived as particularly good in the early days. So, their offer was low ROI but the touchstone, immediate pizza when you are hungry, was very compelling.

Let’s return to the Core Imperative. Make an offer. Without an offer, there is no business, simple as that. Customers need to perceive an ROI or there is no point. The ROI should be clear and real. I can get 10 CDs for 1-Cent. This implies high ROI even though the perspective customer knows they will have to buy more at a higher price . . . but in total they get cheap CDs.

The Touchstone is a brief statement of what you do, what’s in it for your customer, and what makes it believable. For example, Domino’s was selling fast pizza, you get it in 30 minutes or less because you are hungry. You can believe us because, if it’s late, you get it for free. Look at the touchstone breakdown for these offers.

Columbia House breakdown by 4 imperative questions:

1. What is Columbia House selling? - Cheap Compact Discs
2. How much will it cost? – 1 Penny
3. What’s in it for you? – cheap music, bragging rights
4. Why should you trust Columbia House? – Not much to lose. It’s low risk but customers are still skeptical.

Dominos breakdown by 4 imperative questions:

1. What is Domino’s selling? - Fast Pizza
2. How much will it cost? – Not stated
3. What’s in it for you? – Immediate gratification, Pizza now when you are hungry.
4. Why should you trust Dominos? – If they don’t deliver on their promise, it’s free - -strong risk reversal.

Federal Express breakdown by 4 imperative questions:

1. What is Federal Express selling? – Overnight Delivery
2. How much will it cost? – Not stated - We believe this is so valuable; you may not care about price.
3. What’s in it for you? – Delivery is made overnight, your project can continue w/o delay. You have covered your bases.
4. Why should you trust Federal Express? – Trust worthiness is implied in the name Federal Express.

Let’s put this in context of what Mark describes as the Great Formula.

1. An irresistible offer
2. A thirsty market
3. A second glass.

In other words, identify your market and know who is thirsty for what you are offering, make them an irresistible offer and after they have made their purchase, reel them in for repeat business, sell them a second glass of water. If the ROI is real as well as perceived, the second glass is an easy sell.

Believability can be one or a combination of:

1. Proof – this can be social proof (we have satisfied customers), Technical proof (independent data validates our offer), Factual proof (presentation of facts that validate our offer)
2. Credibility – are we credible, do we have the substance to make the offer?
3. Endorsements – high profile or respected people they know that would attest to our solution.
4. High profile customers - who are the big dogs they respect that we do business with?
5. Qualifications – memberships, degrees, member organizations.
6. Awards and recognition – customers like to associate with winners.
7. Logic – rock solid logic to support an irresistible offer.

Regardless of whether or not your are trying to get a date or sell products and services as we do at Hayden Publishing or at Laser Sight Warehouse

As more and more people find themselves twisting in the financial wind, they often to turn to consulting or providing other services for hire.

One of the most pressing and important issues you face as an independent service provider is how to price your services.

While the following will not tell you what to charge for your services, it will give you a number of things to consider. But, before we go into the nuts and bolts of calculating, let's review some basic marketing principles.

First you have to think about how you want to position yourself in your market place.

• Do you want to be the low cost leader?
• Do you want to be the high-end expert?
• Are you introducing unique new services?
• Are jumping into a mature market full of established competitors?

Obviously, how you want to position yourself affects your message? It is very difficult to try to position yourself as the leading expert when you are trying to compete on price. Sadly, your chances of being perceived as the leading expert when you price your services too low are very slim. You may be thought of very good for the price, but you will never be perceived as the top dog.

Here are a couple of examples to drive home the power of perceived value.

Imagine your friend's son or daughter is soon to be married and you are shopping for a $50-$75 wedding gift. You know the bride loves crystal. So as you are shopping you find a beautiful crystal bowl. So beautiful in fact, you are afraid you won't be able to afford it. You almost walk away, but decide to flip the bowl over and see the price.

Tentatively as your allow your eyes to focus on the price tag, you see two things.
#1 it is a brand you do not recognize. And,
#2 the bowl is only $17.49

Instantly, fear sets in. You can't possibly show up at the wedding with an $18 dollar gift, no matter how beautiful it is. So you put the bowl down and go in search of a more appropriate gift.

That my friends, is perceived value. The value you placed on the bowl is greatly diminished just because the price was low.

Here is another example. When EssentiaLink first started out, the message got confused. As we wowed our potential clients with the huge array of products we provide, the conversation always turned to price. Something in our presentation lead our prospective customers to think all of our products would be lower priced than the other guys.

It was not until we approached companies above the purchasing level and started speaking with C-Level managers that our message made sense. We were not selling low cost products, we were offering a simple procurement solution that typically lowered the TOTAL cost of procurement for non-strategic consumable supplies by 25% or more.

In both of these examples, the issue of price obfuscates true value.

Think about this with respect to the service you are offering. Are your prices high enough to establish value? Think of it this way, if your price is too low, it diminishes the perception of value, no matter how much you contribute.

Don't think so?

Have you or someone you have known ever had to change jobs to finally earn a salary commensurate with their abilities and contribution?

A very common problem in companies is that when they hire someone at say $40k per year they always think of them as a $40k per year employee. Even if the employee takes advantage of all the company educational benefits and completes 2 degrees, they still see him/her as a $40k per year employee. Consequently, they only move them up the pay scale based on small annual % increases. So this highly educated and trained individual has no other choice but to seek financially rewarding employment elsewhere.

And the company that hires our hypothetical employee for $70K will always perceive him/her as being a $70k employee and so the cycle starts again.

Are you inclined to price your services low so you can get a foot in the door?

Think about it, will your services ever be valued for the benefit they provide?

Also, imagine a group of CEO's are having social lunch. What do you think will capture their imagination more, the fact that one of them hired a functionary for a nominal fee or the fact that another just committed a bundle of money to an expert to come in and shake things up? If you are the high priced expert that gets results in that crowd, you are going to open far more doors than the perceived functionary.

So here are some things you must consider when pricing your services.

• What is your true cost of providing your services?
  Obviously you have the cost of travel, printing, office supplies, phone, Internet and so on but there are a lot of hidden costs that get over looked. For Example:
  • The cost of business licenses
  • 7.65% FICA and self employment tax
  • Your health insurance
  • Additional Car insurance to cover liability of using vehicle for business
  • Banking and Phone services are higher for businesses and many banks will not allow you to cash checks as DBA
  • The cost of incorporation and/or maintaining O & E insurance to limit exposure to liability.
• You need to charge for marketing time.
  As an employee everything is taken care of, but when self employed you need to plan to spend at least 25% of your time on marketing efforts. Even if you have the perfect gig, it is going to end and if you do not maintain marketing efforts, you may have extended periods of $0 income.
• You deserve to have benefits too.
  As an employee you probably had a number of benefits that comprised your compensation package. For Example:
  
  • 7-10 Paid holidays
  • 7-28 Paid vacation days
  • 0-14 Paid days of medical or personal leave
  • Continuation education benefits
  
  Benefits vary greatly from company to company, but regardless of the level of benefit you are used to, there is an associated cost that must be taken into consideration.
• Do you have children?
  Typically, unless you have found a way to make the 4-Hour Work Week work for you, your home business will place more demands on your time than the old 9-5 did. With that in mind, you may expect an increase in child care costs.

Ok, let's wrap this up with a nice little formula to give you a way to think about how to price your services:

Let's define the terms of the equation.

• S = The desired salary or effective salary you need to replace.
• AC = The expected annual cost to be in business including licenses, phone, banking, insurances etc.
• B1 = The annual cost of your health Insurance benefits
• B2 = The annualized cost of other benefits you want to replace (i.e. $2,000 / year for certification / continuing ed)
• OE = Other expenses such as child care you may need to take into consideration
• PTO = Paid Time Off hours (i.e. 8 hrs. per day for each paid day off you want to replace
• CHR = The calculated hourly rate you need to charge to net your desired salary (S)

The Formula
CHR = (S+AC+B1+B2+OE) / (2048 - PTO) * .75

An Example

• S= $100,000
• AC = $1,000
• B1 = $12,000
• B2 = $2,800
• OE = $900
• PTO = 160 (2 wks vacation, 5 holidays, 5 paid days off)

CHR = ($100,000 + $1,000 +$12,000 + $2,800 + $900) / (2,048 -160) * .75
CHR = ($116,700) / (1,888) * .75
CHR = $116,700) / (1,416)
CHR = $82.41

Notes and Conclusions

Given the above example, your would want to start by pricing your services at $82.41 per hour. But this is just a starting point. You also need to consider what the market will bear. That does not mean your are limited by current market prices. But if you are too high, you must build exceptional value into your offering. By the same token, if your prices are too low, you may need to raise them to the appropriate level to garner the respect and reputation you want.

Also not taken into consideration in the calculation is your current business tax structure. If you are an LLC, you have more deductions than you would have as a sole proprietorship. If you are a C type corporation and work the system properly you can deduct a lot more, but risk double taxation if the corporation makes a profit. These are all topics you should discuss with your Tax Adviser.

If your down time between jobs or time required for marketing efforts is greater than 25%, then adjust the formula from .75 to whatever number represents your situation.

Finally, the 2048 is based on a 40 hour work week. Chances are you will will be working a lot more than that. So you may want to adjust to rate up to reflect overtime. Or not. It is just something to keep in mind.

So, when you run the numbers, are you charging enough?

Blog heOne of the most important things to consider when evaluating opportunities is the cost.

Opportunity Cost, is a business concept that really applies to all areas of life.

The basic concept is that there is a limited resource like time or money and a number of ways to spend or invest it.

For example you have a 3 day weekend. Your choices are to go boating with family and friends or putting in that extra effort to get a job completed for work.

If you choose the first option, you take advantage of the great opportunity to enjoy the outing. But it comes at the cost of high stress, possible job demotion or job loss.

We make these kinds of decisions all the time. When well informed, we realize the consequences of our actions and decide accordingly. In hindsight, we may not always make the best decision, but we generally make the best decision we can for the state of mind we are in at the moment.

So what does this have to do with finance or running a small shop?


Good question. Opportunity cost in business is a measure of what a particular opportunity may cost a business.

In the most simple terms, suppose your company has a limited budget. Easy enough, I suspect.

Within the reaches of that budget are the following:

• A new CNC Lathe for which you think you can find plenty of work
• A marketing campaign to attract new business from local businesses
• A part time employee to take care of bookwork or deburr parts
• Bonuses for your best employees

Any of the above would be a good opportunity for your business, but when you pick one, you do so at the cost of excluding the others.

If you get the new lathe and the work to go with it, you may find yourself working late at night to keep the machine running because, in the short term, you can not afford an employee to run it.

Your marketing campaign may be great and bring in new business, but you may be lacking the equipment to do the work people want. Eventually the new prospects forget about you because you do not have the capacity to do their work.

And so on.

In finance it gets interesting as well. Suppose you completed a large job and now have $50,000 in the bank. What do you do with it?

• You could put it in savings at a nominal interest rate in this market say 2%
• You could pay off some supplier or other debt that may be costing you 10% or more
• You could buy a new piece of equipment
• You could use the money for a down payment on your own building

If you choose to save the money at 2% you do so at the cost of 10% interest on the outstanding loan. But by the same token, with the cash in the bank, you have the liquidity to buy future raw materials without incurring more debt.

If you pay off the debt, you improve your standing with those particular vendors, but by eliminating an important asset, you may find it harder to get future credit for a large project.

If you buy the new piece of equipment, it may produce far more income than could ever be earned in a bank. Or, it could sit mostly idle for months or years until you get the word out about your expanded capacity.

I have worked for a couple of companies where some of my colleagues could not fathom why "management" did not fund their particular project. In many cases they failed to realize that the decision makers had a lot of "opportunities" from which to choose.

Had my colleagues looked around and evaluated the opportunities with which the managers were faced, they may have made different decisions themselves. For example, they may have chosen a different presentation style that was supported with substantial return on investment data. This would have given the managers an entirely different perspective on the proposed project.

Or, they may have chosen to join forces with those promoting a competing opportunity to build a strong case that supported both of their initiatives.

Or they may have waited for a more opportune time before they put the time and effort into getting funding for their pet project.

We recently added central air conditioning to a house we have been renovating. Chances are we will never recover the cost of the installation. But while we are living in the house we are far more comfortable. Our oppourtunity for comfort comes at the cost of return on our investment. For me, it was a decision that was easy to make. :-)re.

As discussed in a previous article, cash flow is oxygen. In the previous article the discussion centered on establishing terms with your customer and invoicing them in a way the makes it easy for them to pay.

But what do you do if your customers don't take advantages of your incentives? What if they are fighting their own cash flow problems too?

A number of years ago I was the Sales and Marketing Manager for a small environmental laboratory. Our customers were working projects that typically involved the government and/or litigation of some sort. We wanted them to pay in 10 days, and offered a 2% discount incentive.

The problem was, they would submit the samples to us, we would do the analysis, they would have to incorporate that data into a huge report for the EPA or legal action. That report might take them 3 months to complete. They could not bill their customer until the report was submitted.

No matter how much they wanted to take advantage of our incentive, it was impossible for them because of their cash flow issues.

The good news was, when our customers realized that 2% discount for 10 days really amounts to well over 24% interest over a years time, the decided to use short term financing. They were able to get loans at 8%-10% APR. To them, that was an annual savings of better than 14% on our laboratory service.

But there were also customers that did not or could not get the short term financing and we had to make some decisions about how to handle our cash flow.

Here are some of the choices you have available to you, all of them have their pluses and minuses.

• Depending on your situation, you can always fire the customer. The may be a really good or profitable customer but if their slow payments are bringing your company down or slowing your growth, sometimes you just have to cut them loose.
• If they are a very Good customer and you are making substantial profit from their business, you may want to consider a factoring house.
  
  Factoring houses are finance companies that buy your receivables at a significant discount. The usually cherry pick the receivables they buy and the higher the risk, the higher their discount.
  
  They also may want to invoice the customer directly or make collection calls when the customers pay slow. This can make your company seem really small in the eyes of your customers and they may move on to another supplier who does not choose to use factoring services.
  
• If you qualify, consider using a bank line of credit or credit cards to float your short term debt.
  
  The down side of this is if your customers really stretch out their payments to you, it is going to be difficult to keep up with these short term payments. And, if you are significantly late or late too often with your payments, they may cut you off and call the note due. If that happens your company can be in a real world of hurt.
• If you have a viable business and one with a strong track record or great potential, you may be able to find some "Angel Investors" to help you finance your cash flow.
  
  Depending on the investment environment this financing can be very difficult and very time consuming acquire. You will have to provide financial statements, do formal presentations, do dog and pony shows, etc. to attract these investors.
  
  If you do attract investors, you are going to have to tighten up your bookkeeping, plan on financial audits, and prepare K1 and other tax forms for them.
  
• If you have good relationships with your customers, you can set some requirements for down payments on large projects. Usually they will understand if you explain to them that your are not a bank and are not set up to finance their project.
  
• Depending on the nature of the products or parts you provide for them, you may want to see of they use procurement cards. If they do, they could make the payment or down payment with the procurement card.
  
  Procurement cards work like credit cards and you will have to have a merchant account to process them. Similarly, there will be fees associated with using the procurement cards and you will want to make sure your profit margins can support the additional cost. If your margins are fairly good, you may want to offer the customer a percent or two discount to use the cards. This improvement in cash flow can be well worth the cost to speed it up.

Now that we have discussed the importance of cash flow. Now that you realize cash flow is oxygen for your company, how do you speed up that cycle to get paid faster?

There are a number of things you can do. Some require more work than others and some are dependent upon the strength of your relationship with your customers. One important thought to keep in mind is, the easier you make it for your customer to pay you, the quicker you are likely to get paid.

First and foremost, make sure your invoices are correct and complete.
Entrepreneur.com reports that 80% of all collection problems result from incorrect invoices.

Understand that the accountants working in the accounts payable department of a company don't just send out checks. They have to match up the payments with invoices. If your invoice is incorrect or incomplete, not only do you slow down the process for the accountants, they are likely to put your invoices on the back burner until they have time to figure it out.

Your invoices should contain all of the following:

My good friend and colleague, Bill Douglas, at EssentiaLink has a saying that really makes a point. "Cash flow is oxygen!"

I think that really puts the subject in perspective.    I have seen large companies go years with out making a profit.    Even though they were losing money they were able to stay a float until better times because they had a workable cash flow.   

Also, I have seen profitable companies go down the tubes in a matter of months that had bad cash flow.

So how can cash flow be more important that profit?
This is best answered by an example that may ring true to some of you.

There is a small CNC job shop that specializes making in small precision parts
for the food, medical and aerospace industries.    Let's call them Quality Widget Company, QWC for short.

Their work is excellent and they have a 95% on-time delivery.    As a result, they can command a higher price than their competitors and are very profitable.

The parts QWC makes are usually out of exotic stainless steel or aluminum.    They make a lot of parts and have to buy tons of raw materials.    In order to get the best prices and maintain product consistency, they buy large lots of certified materials.

So far so good.    If you read the previous article on the Break Even Analysis you know that lowering variable expense goes a long way towards increasing the contribution towards fixed expenses.    The company breaks even on the jobs around the 15th day of the month.

Here is a breakdown of their problem:

Many small shops I have worked with started as a simple concept making a single part in a garage or small space. At first more of a hobby than a business. (much like my little publishing company).


Then things change usually for the better. As the shops continue to do good work they start getting more parts from the same customer or more customers. Somehow, with a lot of effort what started as an avocation or hobby in a garage, is now a small business.


There are a couple if issues that arise when a small company starts to grow. Both are vitally important to survival and sustained growth. The first and the primary topic of this article is understanding the break even analysis. Just as important, and the subject of a future article is the art of managing cash flow. Without a good understanding of both these concepts, the chance of survival is minimal if not non-existent.

So what is the break even analysis? The break even analysis answers the basic question about how much work do you have to do to earn back the money you have invested in a job. For example, suppose you are making door panels on your CNC Router or maybe brass bushings for for some medical device. Obviously after you buy the raw materials, you are not going to make your money back on the first door panel or brass bushing. So how many do you have to make to become profitable?

Good question. To understand to solution to the problem, you first have to understand the language of the break even analysis.

Fixed Cost (FC): The sum of all costs required to produce the first unit of a product. This is a fixed amount and does not change with an increase or decrease in units produced. For example, if you are just setting up your shop to make the custom panels you may have fixed expenses that include: the cost of the router, the cost of shipping the router, the additions to your garage to accommodate the router, the cost to have a larger electrical service added to the garage, and so on. These are expenses you have to make to enable you to go into the CNC router business.

Variable Cost (VC): Costs that vary directly with the production of one additional unit. These costs would include such things as: the cost of the wood, the cost of electricity used, the cost of consumable items like router bits, glue, sand paper, and so on. If you never run the router, you will not have any of these expenses. But as your volume increases, so do your expenses.

Unit Price (UP): This is the amount of money you charge the customer for each unit they buy. Obviously the more you charge, the sooner you may be able to break even on the job. But as we all know, there is a limit to what we can charge. So this number must be something greater than your variable cost and something less than or equal to what the market will pay for the unit.

Contribution (C): Often called profit, this it the amount of money you earn per unit that is in excess of the variable cost. For example, if your variable cost to make a unit is $15 and you sell the unit to the customer for $20, the contribution is $5.

I like to call this contribution rather than profit and here is why. Suppose you paid $10,000 for a CNC router and you made 100 door panels at $5 "profit" ($20 UP - $15 VC= $5 Contribution) each. Have you really made a profit in your business? Not yet, you are still $9,500 away from breaking even. BUT, you have contributed $500 towards paying off the fixed expense.

So the first simple formula to remember is Contribution = Unit Price - Variable Cost (C=UP - VC).

There is an old joke we used to throw around in a shop I worked for. At the time we were selling some finished parts at a price that was below our variable costs. Our joke was "that's ok, we will make it up on volume!"

Break Even (BE): The break even defines how many units must be sold to recover all fixed and variable costs before a single dollar of real profit has been earned. The formula for calculating the Break Even point is very simple. It is Break Even = Fixed Costs / Contribution (BE=FC/C).

So, if you have been following along with the door panel example, you know that to break even on the investment, the shop must sell 2000 door panels.

FC = $10,000
VC = $15
UP= $20
C = UP-VC = $5
BE= FC/C = $10,000/$5 = 2000 units

Here is another reason to think in terms of contribution instead of profit. Suppose you want to invest in a new machine. Your current machine is maxed out and can produce no more. So you need to expand. Obviously, you probably not pay off the machine with the first order you take. In fact, until you ramp up your sales, it is possible the machine may spend a good bit of time sitting idle.

If you only think in terms of "profit" you could make one of two classic mistakes. The first is that you see a job where you stand to make a large per piece "profit" and you really want that job. It is easy to fall into the trap of buying the machine for the one job then find your self paying for a piece of hardware that sits most of the time.

When you think in terms of "contribution" then you realize the job you want so bad, only contributes a portion of what it will take pay for the machine. Once in that mindset, you now can think clearly about how much work you will need to get to make the machine pay for itself.

If you can't project enough work to pay for the machine, the "profit" you might make on that hot job is meaningless.

The second classic mistake is to think just the opposite way. That is, you look at the cost of the machine and think, "I can't make enough 'profit' on this job to pay for the machine, therefore I should not buy it."

Again, when you think in terms of contribution, you realize that, while the potential job will not pay for the machine, it certainly contributes to its payoff. Some questions you may want to answer before you make the decision to buy the machine are:

• How much work is needed at what contribution to pay the machine off in X years or X months?
• How much marketing or my time would be required to get enough work to keep the machine busy?
• How much could I sell the machine for at the end of the job?
• How much does it cost me per month to keep the machine if it is not producing?
• What could I sell the machine for if I needed to sell it in one or two months.

By answering these questions you may find that it is a sound investment to buy the machine.

Here is a real life situation I was personally involved with. I worked for a large company that started outsourcing as much as they could. The predominant thinking was, "why should we make this in house when we can buy it on the outside for less money?"

On the surface it sounded like logical thinking, but the point I argued (and lost) was different. My argument was that, regardless of our "internal costs," if the work was kept in house, whatever we made in excess of the variable costs, would go along way towards offsetting our huge fixed costs.

Even if it was cheaper on the outside, if we did nothing to reduce our fixed cost, then we we would be hurting the company even more. Without the contribution, we would never recover our fixed costs. It seemed simple to me, if the fixed costs were too high, outsourcing was exactly the wrong thing to do.