Are You Working Harder for Less Profit?
Expert Explains How to Profit from the 80/20 Rule
No customer wants to hear that you have other customers, but the truth is that you do. What’s more, no customer wants to hear that you have more important customers, but that’s also true.
According to marketing consultant Betsy Kruger, the problem is that many businesses treat all their customers exactly the same way and wind up sacrificing a lot of profit in the process.
"Virtually every business seeks to increase its profit, but few business leaders realize that a universal law predicts profit from customers," said Kruger, author of Top Market Strategy: Applying the 80/20 Rule (www.BetsyKruger.com). "The law in play here is called the Pareto principle and it’s named for Italian economist Vilfredo Pareto, who observed in 1906 that 20 percent of the people consistently own 80 percent of the wealth. He also noticed that 20 percent of the pea pods in his garden contained 80 percent of the peas. Fast forward a century and recent research confirms that Pareto was right – the Pareto principle is universal and predicts results."
"Extending the 80/20 rule to your business, you can expect the most profitable 20 percent of your customers to generate 80 percent of your profit. Kruger asserts the 80/20 rule predicts that customers in the top 20 percent will generate 16 times more profit than customers in the bottom 80 percent. Kruger’s book explains why this is true and demonstrates how to profit from the 80/20 rule. Her recommendations apply to any type of business. For example, if you are a distributor, you can quickly enact these three steps:
Distinguish – Distinguish the most profitable 20 percent of your customers from other customers. Allocate one day a week to serving them with a top market strategy. Expect to make 80 percent of your usual weekly profits from only 20 percent of your customers. Target – Target similar prospects on the other four days of the work week. Allocate neither time nor other resources to serving customers in the bottom 80 percent. Admit they caused more problems than they’re worth. Convert – Convert these prospects into customers by using a top market strategy. Predict that these new customers will be highly profitable. Anticipate that your profits will quadruple."
"Should we treat customers equally?" Kruger retorts, "Absolutely not! Your customers do not treat your business equally. Your top customers generate massive profits, whereas your other customers generate minimal profits. This means that your business can magnify its profits by targeting your most profitable customers. For example, Trustpoint Insurance personally services the top 20 percent of its customers, but automates services to its other customers. As a result, its sales force has the time to prospect for highly profitable new customers. This top market strategy is a classic win-win game plan: both sales commissions and profits have magnified at Trustpoint Insurance. A top market strategy for your business can be your win-win game plan."
About Betsy Kruger
Betsy Kruger owns Strategic Power, a marketing consultancy committed to empowering world prosperity, one business at a time. She writes, speaks, and consults about the 80/20 rule. Business Expert Press released her book, Top Market Strategy: Applying the 80/20 Rule in August, 2011. Her book enriches marketing textbooks and shows business leaders how to profit from the 80/20 rule.