Most of us have heard of the 80/20 Rule. In life the rule means that 20 percent of your activities result in 80 percent of your happiness. At work the rule says that only 20 percent of employees produce 80 percent of a company’s earnings. Economists will tell you that the top 20 percent of income earners produce 80 percent of the taxes collected.
You get the idea. Essentially only a small, few things produce most of the results in any given situation. This rule can be applied across the board, including your business. Using this rule in your business can produce amazing returns.
In nearly every business, 80 percent of your profits come from only 20 percent of your customers. Those few people are responsible for the lion share of your business’ success. Imagine how much more successful your business would be if you focused your efforts on just those 20 percent? You could greatly increase your profits while decreasing your efforts. Sounds pretty good, huh?
Your first question might be how to identify your top clients out of your entire customer base. In the following example tell me which person you would consider a top tier customer. Customer A has been with you two years spending on average $50 a month for a total of $1200. Customer B has been with you twelve months and spends $100 a month on average with you for a total of $1200. Each customer has spent the exact same amount of money with you, which makes identifying your best customer all the more challenging.
Customer A spends less money with you monthly so in that regard Customer B is better. But Customer A has provided a steady stream of income for you over a longer period of time making them a more reliable customer, so in that regard Customer A is better.
You cannot use sales figures alone to identify the top 20% of your customer base. Factors like how long they have been a customer, number of products/services bought, service costs, and how much time you spend with each customer to get the sale may play a part in your decision. There are many other factors that we could add which could cause us to favor one customer over another.
To identify your best customers you must first find out as much as you can about them. You need to learn their buying habits, and preferences before you can characterize them as top tier or not. The best way to do this is to create a customer base or use your existing one to learn as much as you can about your customers. The types of information you should be asking is
-Name and contact information
-Age (this can help you identify products for every stage of life and allow you to send discounted offers around their birthdays)
-Types of products purchased
-Frequency of purchase
-Total revenue from customer
-Customer service history (do they call you every day, have they taken up any of your time)
All of this data can help you create a profile of your top tier customer base. You can identify trends and categories of products that sell especially well to this core group. All of which can help you to increase your sales and profitability.
Once you have identified your core group of buyers you want to do everything possible to keep them happy and coming back for more. Your job is to figure out how to convert them into more revenue for your business. These customers represent 80% of your total revenue so maintaining a satisfactory relationship with them should be something you work at nearly every day.
The best tactics for keeping your best customers happy is to tailor your messages and communications to them. You should send targeted offers to them based on the data you’ve analyzed about this segment. If your small business involves selling accessories and products to pet owners you may find that most or all of your best customers have bought the same product, like a dog house. Knowing this you can send these customers targeted offers for other products that work well with that particular dog house. Items like comfy beds that lay inside the dog house or nameplates that display the name of their animal are possibilities. The main idea is to send specialized offerings to these core buyers to get them to spend more money with your company.
In addition, you can offer your best customers rewards or loyalty programs. Macy’s does a great job of this; it’s one of my wife’s favorite stores. Each time Jessica buys something at Macy’s they ask for her phone number so they can identify her and attribute her purchases to her account. The more she spends with them the more they send her coupons for future purchases. She regularly receives 20-25% off coupons from Macy’s to reward her with. These coupons and additional communication keeps drawing my wife back to the store time and time again. Programs like this are highly effective in all types of businesses.
You can format a loyalty program based on your best customers buying habits. Use tactics like coupons and other discount offers to draw your customers back. Offer them a 10% discount if they purchase an additional product or service from you within 30 days of their original purchase. The idea is to reward them each time they spend money with you.
If you are ever in doubt about what to do with your best customers simply ask them. Email them a survey or have your sales team place a few calls. Your customers will tell you what they want from you. In most situations you will come up with products and solutions you never would have thought of on your own. Many of my new initiatives have come from listening to my customers.
Good luck and happy holidays.
Ethan Warrick
