When Demand Goes Through The Roof: How To Handle A Spike In Business

For some small companies, like restaurants and clothing boutiques, the pandemic has decimated demand. Then there are others selling products, from toilet paper to medical supplies, that are experiencing unexpected, stratospheric spikes in business.

It's a blessing and a curse, however, especially for small enterprises that must turn on a dime to meet the increased demand. "This can be overwhelming," says Erik Suhonen, vice president of operations and product partnerships at Encinitas, Calif.-based Ecwid, a small business e-commerce platform. Here's how some of those enterprises are coping with dramatically increased demand.

Prioritize Existing Customers

In the triage environment created by sudden demand spikes, companies generally have to make some choices about which customers to prioritize. That's the situation Tim Murphy, CEO of Branch Basics, a Minneapolis-based business selling a non-toxic home cleaning product, faced. Since reintroducing the line two-and-a-half years earlier, growth had more than doubled every year, according to Murphy. So in March and April, when demand started to surge, he couldn't tell whether the increase was part of the company's normal growth pattern. After a few weeks, however, as he watched consumers panic-buying cleaning products and sales experienced a 40% month-over-month increase, he realized he was in new territory.

On the verge of selling out, Murphy made a decision. Usually, first-time customers ordered starter kits with concentrated soap and a variety of empty bottles, each meant for a different use -- doing laundry, say, or washing hands -- plus an oxygen booster. Customers then filled the containers with water and a different amount of soap, depending on the application. When they ran out of concentrate, they ordered more and refilled the bottles they'd already received.

But making those starter kits required a long lead time. With that in mind, he determined the best solution was to prioritize subscribers and existing customers. "We had to take care of them first," says Murphy. He ended up taking the bottles out of stock for about three weeks, ordering just concentrate. As a result, the company was able to keep up its supply for subscribers, while emailing newcomers an apology.

Take Pre-Orders

In many cases, companies that experienced COVID-related demand spikes sold out of their entire inventory in a matter of days. For those businesses, the only course of action was to create a waiting list, while boosting production.

No. 2, a Los Angeles-based maker of sells toilet paper -- the ultimate pandemic-related high-demand product -- made from bamboo, packaged in recycled paper sporting decorative prints. Sales of the product, launched in 2019, grew at a steady clip, until March, according to CEO Samira Far. Then the COVID-19 toilet paper frenzy hit. Over a period of 10 days, the company completely sold out of its inventory.

What did Far do? First, she put in an order about 15 times larger than she'd originally planned.Then she added an option for customers to pre-order the product. While she can't reveal how many requests were made, sales from pre-orders for the period March 21-May 1 made via the company's web site were 2,541% higher than sales in the month of February. Those shipments arrived in early May and, as of now, she's fulfilled all the orders.

Boost Efficiency

A precipitous increase in orders obviously requires more time and effort on the part of the company. But often, small measures can yield big results. Mark Murrell, CEO of Get Maine Lobster, a Portland, Maine-based business that ships the crustaceans across the country, approached the problem by making his operation more efficient, while keeping the staff lean. For example, he started leasing a forklift, the better to speed up the time required to load up pallets from the dock onto his truck and drive them to his warehouse. He also stopped using a supplier that was an hour away, because it couldn't deliver products to him. "I don't have the time to get them now," he says. He's relying instead on another supplier, who is closer-by.

Work with Late-Paying Customers

Retailers and other companies selling consumer products directly to the public generally don't have to worry about getting paid: When they ramp up to meet a surge in demand, they can expect customers to pull out their credit cards and take care of the bill. For businesses that have experienced a sudden spike in orders from cash-strapped essential service providers, it's a different matter.

Take New York City-based On the Right Track Systems, which makes disposable, recyclable hospital privacy curtains. When orders from hospitals and other healthcare facilities tripled in March, CEO Ajay Singhal increased production, receiving shipments weekly, instead of once a month, and hired two more warehouse workers.

"From a business standpoint, this has been positive," he says. "But to be in the middle of all this sickness, it's very, very trying." Especially since many hospitals hard-hit financially by the pandemic started slowing down payments from the net 30 that was typical before to as long as net 180 now. "For a small business, that can really affect cash flow," as Singhal notes. The company has managed, he says, by being "very careful" in its spending.

Watch for the Bullwhip Effect

That's a phenomenon whereby, in response to sudden spikes in demand, companies increase their orders for those items, only to be stuck with a massive amount of excess inventory when interest in the products subsides. "Imagine you're a store manager and you see a run on paper towels, so you over-order more," says Nader Mikhail, CEO of Elementum, a supply chain management firm in San Mateo, Calif. "Fast forward three or four weeks, now there's too much of the stuff everywhere."

It's something that's hard to escape. For his part, Murphy says that after panic buying subsided in early April and orders settled back to a normal pace, the company ended up with more cleaning product than it would normally have on hand. "We're very heavy on inventory internally," he says. Fortunately, according to Murphy, the company had the cash on hand to pay for the supplies. Plus, the number of subscribers has increased from 7,000 to 10,000 since March.