How much does it cost to obtain a new customer?
How can you use the 80/20 principle to PROACTIVELY increase your revenue by 10% – 200%?
First, you must find out who the top 20% of the customers are. Here is a simple explanation:
- Take your customer sales data for the last two or three years and download this data to an Excel Spreadsheet.
- Once it is downloaded, sort from highest revenue to lowest (you should also look at customer by margin).
- Add a column for cumulative percent on the side of the revenue sort. Sum each row until you reach 80% of the total revenue. Now you know the top customers.
If you complete this analysis over several years you can also discover top customers revenue and margin trends. It might be a surprise that some customers that were the top a few years ago may not even be on the list. This is an opportunity to visit them and find out why – and invite them to return.
Once the top 20% or “80/20 Customer Gold Program”TM customers are determined then a methodical program can be designed to build relationships with key people within the organization. What people’s titles would you want to build a relationship with? CXO, purchasing agent, accounts payable, project director, sales department, etc. Now strategically have a corresponding department person in your company build a relationship with them. How do you find out what these people like or enjoy? Meet or talk with them to get to know them better. This process will build a proactive vs. reactive customer relationship.
The benefits of this “80/20 Customer Gold Program” TM are significant:
A. Synergistic Buys: Most customers only purchase about 5%-20% of the products or SKUs a company produces. When you build a proactive relationships the customer can be introduced to other products that may benefit them but they currently do not purchase. Thus synergistic buys are possible to grow the business.
B. Hot Leads: Your top customers know other companies that may need your products but you may have never been asked. As you meet with and grow the personal relationships, they will be willing to provide people they know that may use your products. Thus another way to grow the business.
C. Increase the Pain of Change – Retention: With a reactive customer service, a typical customer will tolerate about a 10% rise in prices or drop in quality. But with a proactive relationship this level of pain tolerance goes up to about 40%. Thus you could have a higher price by over 30% before they would seek another vendor.
A methodic strategic development of a proactive customer service can yield large revenue growth from your existing customer base. The “80/20 Customer Gold Program”TM
Mergers and Acquisitions Business Value: Eric, NY gained valuation insights & 80/20 Customer Gold by Dale Richards.
M&A Business Value: Eric Mertz, Rochester NY gained valuation insights that he wished he knew for his four acquisitions. He also will dig in on the 80/20 Customer Gold Program TM that Dale Richards, Excel Management Systems, Inc. presented on Business Valuation Principles – How to Increase Your Business Value, Financially, Operational and Strategically. He plans to implement the 80/20 plan immediately.