Get ready—'tis the season for resolutions. But instead of a boring list of all-purpose to-dos, here's a single goal that can make a big impact: We will identify our most profitable customers (the top 20%) and create a strategy to increase business with them by 20% before year's end.
Let's call it "the 20/20 strategy." It can capture the attention of your entire organization to drive profitability in 2006. Read on to find out why it's so powerful, and how you can implement it successfully.
Focusing on the Top 20 Percent
The Pareto Principle, or the 80/20 rule, states that the relationship between effort and return is not balanced. It's been proven many times over, particularly when it comes to money—80 percent of a company's revenue comes from 20 percent of its customers.
For a company with $10 million in revenue, that means that approximately 20 percent of its customers generate $8 million. If the company can increase revenue in this group by 20 percent, that's a cool $1.6 million (a 16 percent revenue increase) from its very best customers who already are favorably inclined toward the company.
Doesn't it make sense for a company with a solid client base to concentrate the largest part of its marketing budget and activities on the most profitable 20 percent of its customers?
The answer is yes—and understanding this principle should have a significant impact on your company's marketing strategy. This doesn't mean that the 20/20 strategy will be the only goal of marketing. But it does mean that it will take the lion's share of the budget, the staff and the strategic thinking power of the department—as well as collaborative agreement from other departments.
It Takes a Team Effort