When I start working with a new client, one of my primary focuses is a thorough analysis of their finances. If you’re interested in learning about one of the first steps I take to boost a client’s turnover, reduce their expenses, and ultimately increase profits, read on…

Here, I’m delving into the age-old business principle that 80% of a company’s sales come from just 20% of its customers. In this edition, we’ll explore how to identify your A, B, C, and D customers, and why it’s crucial for your business’s success.

Don’t have time to read or action this?
Then get in touch – I can not only help you address this, but also help you manage your time, so you have enough hours to prioritise the growth (and success) of your business!

Book a slot in my calendar and let’s have a chat.

The 80/20 rule in customer relationships
The Pareto Principle, often referred to as the 80/20 rule, has proven true in countless businesses across various industries. It suggests that approximately 80% of a company’s revenue is generated by a mere 20% of its customers. That leaves us with an important question: Who are these vital 20%, and how can we make the most of our relationships with them?

 

A for Awesome, B for Beneficial
A great customer is more than just a revenue source; they’re a partner in your success. These “A” and “B” customers typically spend more, require less hand-holding, and foster mutually beneficial, long-lasting relationships. By providing exceptional service to these valuable clients, you’ll not only secure their loyalty but also encourage them to keep coming back for more.

C for Challenging, D for Detrimental
Now, what about your “C” and “D” customers? These are the clients who, despite being a part of your revenue stream, consume an inordinate amount of your time and resources and/or value you less, which is detrimental to your business. Your goal is to minimise your dealings with them and, where possible, give them a reason to explore your competitors.

 

Identifying YOUR 80/20 customers
Consider categorising your clients by highest to lowest turnover, then redo it by highest to lowest profit. Then once you have taken these points into consideration, look at how they fare in the debtor’s book.

Ask yourself these questions:

1. Are they high maintenance, or not? Weigh up the pros and cons of this.

2. Do they bring the best out of you as their service provider?

Or use the RFM Method (Recency, Frequency and Money)
List your current clients in a spreadsheet and then rank them on:

1. Recency (of last purchase)
2. Frequency (of purchases made over a given period)
3. Money (spent on those purchases)
4. Profit margins
5. Time spent

This usually throws up a few surprise contenders for focusing marketing and sales effort on.

Now you know who your top 20% are! But never ignore the 80% because we sometimes spot niches which we are under exploiting. Now consider:

What do A and B Grade clients mean to you?
Ok, so let’s have a look at what you consider to be a great customer. Write down their attributes. Think about:

  • Buy regularly
  • Pay early
  • Co-operative
  • Know what they want
  • Take advice
  • A great source of referrals
  • They buy across your range
  • Geography
  • Don’t quibble on price
  • Make doing business easy
  • Enjoyable to deal with
  • Can you think of any more?

Some examples of C & D customers:

C – Don’t accept advice; don’t build relationships; blame you for their mistakes; low margins
D – Don’t engage; it’s all about price; pay later and later

Aim: To Service Only A and B Grade Customers, and move the best C Grade Customers up to B’s.
Hints and tips:

  1. Know who your best customers are and focus on them to make them as happy as possible to ensure they come back to you time and again.
  2. Treat them like royalty every time.
  3. Think of them in terms of lifetime value.
  4. Offer gifts and rewards for continued patronage and encourage them to bring their friends.

Sack D grade customers
Send a letter or email to any customers that you don’t want to do business with. These customers are normally the most demanding of your time, hassle you on price, and then consistently make late payments – and they usually don’t need any encouragement to bring their C and D-grade friends either. In your letter politely and simply outline the minimum standards that you expect from your clients. This way they can either toe the line or go elsewhere.

1) Don’t say “go away”, but make it clear what you are prepared to accept and what you aren’t. They should get the message.

2) Remember that any customer isn’t necessarily a good customer. Some, cost you money, and worse, take your focus from the A-graders.

When you no longer waste time and resources on unprofitable customers, you can devote your time to customers that serve your business as well as you serve them.

In my next post, I’ll delve deeper into strategies to delight your “A” and “B” customers and help them become your greatest brand advocates. Remember, your customers are at the heart of your business, and nurturing those key relationships is the path to long-term success.