“Everyone is equal” – it’s a concept ingrained in Canadian society. But here’s what you, as a business owner, need to understand: all customers are NOT equal.
You might have heard about the 80/20 rule before. Essentially, it’s the concept that 20% of your customers bring in 80% of your sales. Business owners tend to ignore this rule because they feel they should cater to everyone, and that’s understandable. However, let me explain why this is working to your disadvantage.
First, you really need to understand what the rule is all about. Sure, the basis of it is Economics and is proven through statistical analysis, but it’s something that speaks to all of us regardless of how good we are at statistics. The exact numbers aren’t the main focus here. It comes down to realizing that a minority of your actions yield the majority of your rewards. This doesn’t just apply to your business , but nearly everything else. You can find plenty of examples in your life.
You probably spend most of your money on a few specific things, or maybe you spend the majority of your time with a certain few people. The same concept applies to your business. If you make a to-do list to follow, four out of the 20 things will be way more important than the other 16 items. That’s not to say you should disregard the other 16 items, but you should acknowledge that your priority lies within the first four.
Who are the 20%?
Therefore, as a business owner, your goal is to identify the 20% of your customers who are vital to your business’ success. Award-winning author, Perry Marshall, gives some tips in his book 80/20 Sales & Marketing on how to do just that:
- Go through your customer list. This could be an email list, Facebook followers or even just a mental list of your most identifiable customers. Then, look for R-F-M: the customers who bought from you most Recently, the ones who bought more Frequently and the ones who spent the most Money.
- Identify what category your customers fit into. Chances are your highly valued customers fit into a certain demographic. Some of the categories would be gender, race, age, education, marital status and income. This is important knowledge because it’ll allow you to get your message out to the people who will be most receptive to it.
- Know your geography. It’s important to know where your most valued customers live. This can help you concentrate your marketing efforts.
- Find your “Silent High-Volume Buyers.” These are basically customers who don’t come to your business often, but when they do, they spend a big amount every time. They usually go by unnoticed but you should definitely put in effort to build a relationship with them.
Asking the right questions
To help you gain the most out of those highly profitable 20%, ask yourself these questions:
- How would I describe the typical recurring customer?
- What are their characteristics?
- How could I appeal to them more?
Once you do that, ask yourself questions about your business itself and how to appeal to those identified customers:
- Which of my products sell the most? Why?
- How could I apply that to my other products?
- What do I need to make this happen?
It’s natural that you want to give your attention to everybody but not all of them are needed. Focus on what brings in the most rewards and maximize on it. Once you start putting your energy in what really matters, you’ll start seeing results.