Friday, 4 January 2008

‘Sacking a few customers,’ Using the Pareto Principle

Yesterday I mentioned the Pareto Principle (aka "the 80/20 Rule")

Today I am going to talk about one exercise using this rule; I call it ‘sacking a few customers’.

What am I crazy? No I am deadly serious

When I start on a business growth project a large proportion of the clients that I work with are wasting vast amounts of money, valuable time and resources chasing and doing business with customers and products that bring I low levels of profit.

The big lesson is that I can pretty well guarantee that 20% of the profitable business comes from 20% of their customers.
But all of the marketing effort and activity is mostly aimed at the 100%.

This is what I call scattergun marketing.
If you were a hunter would you just go out into the fields with a big gun and blast away at the bushes and hope that you hit something?

Of course not if you were sensible you would go out with your snipers rifle go to the watering hole at feeding time and making sure that you were upwind of your prey you would use one shot to hit your selected prey.

So why not apply that principle to your business.

Firstly you need to have good information about who purchases what products and services and at what price, (do you have varying levels of discount?).

Then see who is giving you the best profit, often it’s not the customers who buy the most?

Now you know who to target and who not to, (are there some customers that you can’t change to become the 20% most profitable within the 80%? If so why are you dealing with them in the long term?

Does anyone have a problem with this logic? It works for most of my clients, so why don’t you take advantage of this powerful technique.

Remember it’s all in the numbers!

Alan Briggs

Dynamic Business Strategies Ltd
Tel: 07917 446068


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