The 80/20 rule, otherwise known as “Pareto’s Principle” is going through a revival. Marketers, business analysts, and academics are all calling for an increased focus on this seemingly, set in gold, business and life ‘standard’.
In simple terms, what the 80/20 rule says is that 80 percent of the work done, or sales made, or service given (depending on your industry or point of view) is performed by 20 percent of employees, customers, or clients. In other words, from a business perspective, the vast majority of your revenue, and hence profit, should be coming from a mere 20% of your customers.
Business analysts and financial advisors are now advising their clients, in these trying economic times, to focus their efforts on those customers, or areas of your business, where you receive the most revenue from. That spending your time with the other 80% will result in higher costs, and less attention to the areas of the business that make you the most money.
In concept this is a great idea. Spending less time on those areas of your business that contribute the least to your profit is certainly a worthy goal. But, I wonder if we are being a little short sighted here.
If you think about your business and how it got started, or even better: Think about your most consistently profitable customer. Did that customer start out as being your largest customer? Sometimes they do. But most likely they did not start out that way. They started by buying small amounts of your products or services, and then gradually grew as their confidence in what you have to offer increased. They were at one time a member of that vast 80% that contributed less than 20% to your profits.
Are you willing to give that customer up today? No, you want them and their business.
Now look at your customer list. Is it possible that there is a hidden gem amongst that 80% that will someday become one of your best customers? Predicting which ones will make that monumental move may be the most difficult thing that a business can do. There are so many unknown variables that impact how and why customer relationships grow, that it is very difficult to predict what will happen. But you know your customers. Look closely at what you did to get that one customer over the invisible hump. You will most likely find clues that will help you bring others into the 20% fold.
Spending the majority of your time working with and building successful relationships with those customers that provide you the most revenue will help sustain your business in tight economic times. But don’t abandon the other 80%. You never know when they might become your greatest asset, and the key to achieving long term profitability.