Apply 80-20 rule to marketing and sales

Janet Arrowood

Perhaps you’re familiar with the so-called 80/20 rule. But have you ever applied it to marketing? Have you considered the implications of the rule on sales?

What, exactly, is the 80/20 rule? Simply put, the rule states 80 percent of your referrals, sales or revenue comes from 20 percent of your marketing efforts or customer base. To increase closing rates, sales or revenue, you should devote your limited time and resources to the referral sources, prospects or customers most likely to get you the results you want. This targeting requires some thinking and analysis of your prospect and customer base. Who are these prospects and customers? Who are your best referral sources? Who will bring in the most revenue?

Here’s a simple exercise to identify your top 20 percent. Make three lists, one each for customers, referral sources and prospects and target markets. Now, for each of the three lists, make a table with six columns. In the left-hand column list each member of your top 20 percent of customers, referral sources and prospects. In the next column list the annual revenue or number of referrals from that source. In the third column from the left list each member of the middle 60 percent of your sources and the revenue or referrals they generate in the next column. Repeat the process in the final two columns with the bottom 20 percent of your customers, referral sources and prospects.

Now, take a hard look at each table. What is the total revenue or number of viable referrals or prospects from the A list or top 20 percent? How about for the C list —the bottom 20 percent? Do you really want to spend valuable resources and effort on this group? Perhaps you have a professional or business colleague who’s new to the business and might have the time and resources to work with your C list members to convert them into B list members. Think about how much time and how many resources you could free up while helping out a colleague and ensuring those customers or prospects get the attention and service they deserve.

Too often, business owners reward people or businesses that aren’t active clients or customers, spending time, resources and money to try and capture them rather than rewarding and incentivizing existing customers and referral sources.

If you own a personal care service such as a hair salon or massage business are you are trying to grow your client base? Who do you incentivize? Potential new clients or existing clients? Referral sources? The tendency is to provide new or “potential” clients with incentives — buy one, get one, 50 percent off or next visit free. But what about rewarding regular clients for their loyalty — fifth visit free or a 50 percent discount for making a referral? Most marketing and retention consultants will tell you it’s far less expensive to retain existing customers than seek out new ones.

Sure, everyone needs — or at least wants — new customers as well as to keep existing customers. But sometimes the cost of doing so is unacceptably high. Why not incentivize existing customers and referral sources so they can do the hard part of getting new prospects and customers for you? Then you can devote more time to improving your offerings to those people and businesses with whom you already work.

Implementing the 80/20 rule could be difficult since many of the customers, referrals and prospects in the middle 60 percent and bottom 20 percent might be friends or long-term customers. But business growth and success sometimes require unpleasant decisions.

Keep in mind it takes a long time to gain a new client, but relatively small gestures keep existing clients. Where would you rather spend your time, effort and money? Hopefully on the top 20 percent.