Monday, December 22, 2008

Fastener Marketing with the 80/20 Principle - Part 2

In part 1 we reviewed the basic first steps of making an 80/20 analysis, using customer profit data. Now, at long last, we'll go over how you can turn the data into information and action.

Use the results of an 80/20 analysis to help you see patterns you might not have noticed (or didn't want to notice) otherwise.

The most obvious would be that a small group of customers produces a huge portion of the profit. This is super important. I know I am repeating myself from part 1, but hey - it is important.

If you lose a small portion of this top customer business, you lose a big chunk of profit. Not just sales - profit.

On the other hand, if you treat them well, find out what you are doing right (best way to find out? - ask them!), and apply the time and resources to do more of it, any increase in activity with these top customers adds a big chunk of profit. It's the leverage of 80/20 and it works both ways.

Next scan your prospect list and the bottom 80% of customers for the ones that could be in the top 20% and think about how to get them there.

T.S. had an excellent comment about negative ways 80/20 information is all too often used. I agree with him.

Don't go telling your customers that you have run any kind of analysis. They really shouldn't know how they compare with your other customers.

Your customers only need to know that you appreciate them by how well you take care of their needs and wants. The analysis is to remind you to do just that.

Don't use the numbers to apply silly labels and give cheesy plaques to the top customers while effectively letting the rest know that they are second-rate.

But do use this great information internally in order to allocate precious resources like time. There are plenty of ways to make sure you are using these resources where they will have the most impact (leveraging the top 20%), without kissing off the bottom 80% of your customers.

So that will lead to part 3.