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The 80/20 Rule of Sales: How to Find Your Best Customers

October 9, 2013
URL: http://www.entrepreneur.com/article/229294

It is an old business adage: About 20 percent of your customers produce 80 percent of your sales. In my book 80/20 Sales & Marketing, I argue that this 80/20 principle also applies to time management, search engine marketing and far more.

The funny thing is that even with sales, business owners often ignore the 80/20 rule.

We're all tempted to waste our time trying to please all of our customers instead of the most lucrative ones.

We are all conditioned to always respond to the stimulus around us. So if you obey the 80/20 rule, you are going always to feel as though you are ignoring something -- because you are.

It will be an irritating feeling at first. And it particularly gnaws at Americans because we are prone to trying to treat people equally. The phrase is clearly written our Declaration of Independence, that all people "are created equal."

But all customers are not equal. Far from it. Some earn you an amazingly disproportionate amount of money, many make you a little bit of money, and some even waste your time. With the last group, you lose money selling anything to them at all.

Your goal should be to zero in on those 20 percent of customers who are essential for your business' prosperity.

Here are some tips on how to do just that:

Mine your customer lists. Maybe it's your email distribution list or your company's Facebook following. But I still find it amazing how many businesses don't bother to look up sales data on the customers. Apply the R-F-M rule: Check which customers on your list bought most Recently, bought more Frequently, and spent the most Money. Bingo. You've found a chunk of your 20 percent. Focus on them. Send them nicer Christmas gifts. Send them a postcard when you're on vacation.

Study your geography. Delve into your point of sale systems and find out where your money-making customers actually live. You can do it really bonehead simple with thumbtacks on a map if you want; or you can do a detailed study. Either way, odds are people or businesses from certain neighborhoods or certain cities are providing most of your business. For example, I know that most of my business consulting customers come from suburbs of technically advanced markets such as San Francisco, Dallas and Washington, D.C. This is important knowledge because you can save money on Internet advertising and other forms of marketing by narrowing it to specific geographies.

Find your customer niches. The customers who buy the most expensive products or services almost always fit a peculiar demographic. They are noticeably different than everyone else. Stay open-minded as you figure this out, too. For example, I have a client who provides publicity for authors. Overwhelmingly, his hottest buyers are middle-aged divorced women. Many are rebounding from failed marriages and feel compelled to do something significant -- like write a book. My advice to my friend is to subtly take advantage of this insight by publishing customer endorsements where the authors mention similar struggles. People who've experienced that pain can't not notice. Those stories naturally attract similar authors to the business.

Fire your problem customers. Inevitably, there is another 10-20 percent of customers who rack up support tickets and chew up phone time, and take away from you servicing your most lucrative 20 percent. If you've tried to fit a square peg into a round hole too many times with them, just stop. I've done that. I've said to customers, 'I should not be consulting for you anymore.' I've occasionally even blacklisted customers -- or at least made a point to ignore them until they go away. Be polite and gracious about it, because you don't want a bad online review. But still do it.

Pinpoint your 'Silent High-Volume Buyers.' Almost all businesses have a few of them -- especially in B-to-B companies. They send in a purchase order every two months, and it's usually a nice fat one. They truly are your highest-return customers. They require so little maintenance that you don't even notice they're there most of the time. Instead, you're chewing up time on the phone with the squeaky wheel guy who actually costs you more money to service than he makes you. Ignore the problem customers, and direct your time towards relationships with the hassle-free, big spenders. Take them out to lunch. You'll most certainly find there's a product or service you have that they don't know about.

It is so natural to want to pay attention to all of your customers. But you don't need everyone -- far from it.

Paddle away from the 20 percent of your customers who cause problems, and focus on the 20 percent who buy the most from you.