The 80/20 rule is a standard business principle. It states that 20% of your customers should make up 80% of your revenues. This is often the case in many businesses. Most people don’t realize that this rule is also known as the “Pareto Principle” and was created by Vilfredo Pareto in 1906 when he discovered that only 20% of Italy had 80% of the wealth.
This distribution is present in most businesses, even though it’s a rough estimate. This is a concern as even one of your top 20% customers could suddenly leave. It can have a significant impact on your revenue. There are many reasons why a customer might go to your company, including bankruptcy, changing product lines, leaving your company, or simply moving to a competitor. You should constantly be expanding your customer base. Don’t accept the 80/20 rule and only focus on 20%. Should we instead focus on the 80%? The truth is that neither.
Which area should we concentrate on?
While focusing only on the top 20% may sound good at first, it is essential to realize that we must also develop the remaining 80% to increase the customer base. What can we do to address this problem? This is how you can tackle it.
Instead of a simple 80/20 segmentation, let’s break down the customer base into multiple segments:
Sales staff should be paying attention to the Top 20% segment. The Bottom 50% segment typically contains smaller customers with lower potential. However, there may be some gems in the rough. To fight the 80/20 rule, the features you should be focusing on are the Next 10% & the Following 20%. These segments will help you grow your customer base, increase revenue, and improve distribution. These customers are usually more knowledgeable about the products and services you offer, do business with you frequently or only occasionally, and have the potential to grow.
How can we reach these target segments?
As you can expect, each segment has a significant increase in customers as you go down the four elements with the highest number of customers in the bottom 50%.
The best way to reach these segments depends on each business’ communication capabilities. However, this is an example of how they are typically “touched”.
Top 20% – Face-to-face visits by a salesperson in the field, as well as being called upon regularly by inside sales personnel and receiving promotional emails.
Next 10% – Call by inside sales occasionally. You will also receive promotional emails and face-to-face visits if there is a unique opportunity.
Follow 20% to be called by inside sales sometimes and receive promotional emails.
Below 50% – You will only receive promotional emails if you are selected.
Although there are many ways to treat customers differently, the above is a standard setup. We will be concentrating on the Next 10% and the following 20% segments. This means that we will need to make every effort to contact these customers via a face-to-face visit or by calling them with a call to follow up. To make these even more effective, an email campaign should follow up.
Call to Action can be as simple as registering for a webinar that provides more information, taking advantage of a promotion or reading a whitepaper or case study about your product, or asking for an order. Keep track of all contacts and results to measure the effectiveness of your campaign.
How can we target the key segments?
We can reduce the number of customers by reducing the number of these segments. As a way to limit the number of customers, you might consider focusing only on the Next 10% and then adding the Following 20% segment. This will give you an idea of what works and what doesn’t.
Targeting the customers that have the highest potential to succeed in the targeted segments is another option. This could be tricky depending on the fields and attributes that are in your CRM or customer database. You may need to manipulate data in Excel, Sequel, or another software to filter the results.
With this information in mind, we can now use laser focus to accomplish our goal. Are you looking to increase sales of a particular product or service? You want to increase the number of customers in a specific region. Are you trying to raise awareness about a new product/service that you offer? Do you target customers within a particular niche? These refinements will allow you to limit your customer base to those who are most interested in what you offer. If your new product is not compatible with networkable consumer electronics products, it is not a good idea to call customers who are interested in the Networking niche.
If you have too many customers to target, you can always outsource the project to one or more companies that offer this type of service. However, I strongly recommend that you take the time to segment your customer base before outsourcing the project to another company.