Managing your sales activities to focus on the most profitable customers and products is key to the success of your business.
In his book, 80 / 20 Sales & Marketing: The Definitive Guide to Working Less & Earning More, Perry Marshall explains how small businesses can boost sales by applying the 80 / 20 Principle. Consider that 20% of the marketing activities that you carry out are likely responsible for 80% of sales in your company. That’s the good news.
The bad news … 80% of your marketing activity is making only a minimal contribution to your bottom line, or worse, attracting customers who eat up your profit. Many businesses are spending large sums of money on campaigns that generate minimal sales for the business. You likely have first-hand experience with this. Think about all the junk mail you receive, but never open, because it’s irrelevant to you. This is a perfect example of advertising dollars going to waste.
Who ARE your customers?
Can you name the 20% of your customers who generated the majority of your revenue in the last 24 months? It’s quite likely these customers are responsible for 80% of revenue over the last 24 months. It’s much easier to increase revenue by catering to the needs and wishes of your top 20% than it is to try to appeal to the masses — who may actually be COSTING you profit.
So, how well do you know what your top customers want, need and wish for? Guessing isn’t good enough. You need to know. You need to be asking them, listening to their answers, and figuring out how to add value to what you are already providing them.
How one small business owner boosted sales with the 80 / 20 Principle
Jake runs a jewelry store in a small town in Minnesota. His products are high quality. Daily, his shop is frequented by locals and a number of tourists. Sales had been growing at an average rate of 5% per year but were showing signs of slowing down.
Jake believed the best way to boost sales was to send prospects and existing customers mailings about new products, giving them the option to place orders by telephone. He hired a local printing and design company to produce a total of 10,000 flyers to be delivered to each household.
Three months into the campaign, sales were still declining, although Jake had noticed a few more people calling or popping in to make inquiries. However, these customers were consuming a lot of his time without making a purchase. Having spent well over $50,000 on the campaign (ouch!), Jake was very worried. In desperation, he hired a business consultant who had introduced him to the 80 / 20 Principle.
In working with the consultant to apply a refined and customized 80 / 20 analysis to his customer base, Jake realized approximately 50% of his sales came from 5% of his customers. As it turns out 10 wealthy customers living on the edge of town were responsible for 50% of Jake’s sales!
Jake and the consultant figured out a simple way to collect their contact information. Jake then reached out to these customers and asked them some very targeted questions to ascertain their wants, needs and wishes.
Since then, Jake refocused his marketing activities on these customers. He now sends 10 mailings to these customers on an annual basis at a cost of only $80, plus the initial cost of redesigning the materials to resonate with these customers. As a result, Jake has seen sales increase significantly while his advertising costs have fallen dramatically.
In the course of understanding his best customers better, Jake developed a targeted campaign to attract more customers like his best ones. Even after executing this new campaign, Jake has cut his advertising costs in half. He has a solid marketing strategy he can use going forward, and he’s now looking to expand to a new location in a neighboring county.