Tom Wilson's Marketing Blog

Unlock Your Top 20% of Customers for Sales Growth

Hi there!

I got an e-mail in response to one of my previous posts about the "80:20" rule, which states that you should expect that 80% of your sales will come from around 20% of your customers. The e-mailer asked me to develop the significance of this a bit further.

Your top 20% are your key customers. As such, these are your best bet for getting additional sales. These customers know you. They trust you. And they already buy from you in quantity. Thus, they will be more receptive to any offers you make.

So, make key customer management one of your major strategies. Look after these customers. Court them. Unlock the potential they offer you for increasing your sales.

There are lots of marketing strategies you can use to get more value from your key customers including: up-selling, cross-selling, offering packages, bundles, retrospective discounts, and so on. If you want more suggestions, check out the free marketing ideas, strategies and tips on my website.

In addition, read my Complimentary White Paper: How to Deliver Exponential and Sustainable Sales Growth to Your Small Business

By the way, thanks for the e-mails in response to my posts. I'm delighted to receive these.

Even the Small Business Needs to Follow the 80:20 Rule

Hi there!

My website offers low cost professional support services to the small business by telehone and email and I asked one of my clients to do a customer analysis. Her email reply expressed concern: "Tom, I'm shocked. Nearly 80% of my sales are coming from only 20% of my customers". "Don't be shocked", I fired back, "that's exactly what I wanted to hear".

When you analyze your customer base you should find a similar ratio. Let's say you have 1000 customers and sales of $1M; 200 customers should be providing $800K, while the other 800 will give you the remaining $200K.

This is called the "Pareto Rule", which says that 80% of the output of anything will come from 20% of the input. And it really does work in business situations.

What's the significance if you find that it doesn't apply to your customer base? 

Let's say that 10% of your customers provide 80% of sales. This means that you're over-reliant on too few customers. This is a warning sign. It makes your business vulernable in the event that you lose one or two of these customers. So, you must take action to bring the ratio back into balance.

On the other hand, let's say it goes the other way and that 80% of your sales come from 30% (or more) of your customers. This is also bad news. It means that you're having to deal with too many small customers. And this pushes up your costs. Remember: it often costs as much to service a large customer as it does a small one. So, a ratio of this nature hits your profits.

Why not consider abandoning the 80% who only give you 20% of sales? Don't bother. The Pareto rule will still kick-in, so where do you stop.  Anyway, a small customer today could become a large one tomorrow.

One more point I would make about your customer analysis. If you find that any single customer gives you more than 20% of your sales, beware. This is unhealthy as it means you could be in serious trouble if that customer stops buying from you. And the higher the proportion of your sales he has, the greater the danger you are in.