Depending on your industry norms, it may be acceptable that a small proportion of your customer may not be profitable for a known period. Not knowing who these customers are; the period they cost the business money and the payback period will drive your business into a black hole. Your most profitable customers must support your least valued customers. However, your business is doomed if this continues for an extended period.
Knowledge is Power
Pareto’s Principle state that 80% of your sales come from 20% of your most valued customers. You must know which of your customers are the 20% and have a clear strategy to secure, maintain and grow these customers, if your business is to gain significant growth in sales.
We want to satisfy all our customers equally, but not all customers are equal, some do deserve more of your attention. The seven steps below will help you to identify the customers that warrant your focused attention.
Seven steps to developing an 80/20 customer sales strategy:
- Record and analyse sales data on all your customer purchases.
- You should know which customer purchase recently, frequently and the value of the purchase.
- Analyse this data to find your 20% of customers that are of most value to your business and which are of least value and which have the most potential.
- There will be trends that form categories of customers, you might all the categories 20 | 60 | 20 or most value, less valued and cost customers or Premium, Standard and Threatened.
- Develop a profile of the character of your most valued customers; these are your best 20% of valued customers that invest disproportionately in your business.
- Potential customers are those that have the potential to give you greater frequency and/or value and could become your most valued customers.
- Develop a strategy to develop your potential customers and maintain or grow your most valued and use the profile to secure more of your 20% of customers.
What is the result?
You will find some customers that do not warrant but demand more of your attention; conducting this analysis helps you to develop strategies that allocate the appropriate resources to your customers. Developing a focused strategy will enable you to grow your most valued customers and your profits.