Back in the 1800's there was this wily economist named Pareto. During his career he published quite a controversial paper which claimed that 80% of the wealth in society controlled by just 20% of the population. Across history, diverse cultures and even economical structures the result was always the same, a select few controlled the lions share of wealth.
In recent times this principle has come to be known as the 80/20 rule and it applies to more than income distribution. To give you an example 80% of your results will come from just 20% of your efforts. Typically you wear 20% of your wardrobe 80% of the time. And in business 80% of your income is sourced from just 20% of your clients.
By using the 80/20 rule together with integrated CRM software you have the opportunity to be more strategic in your business.
Common sense dictates that if 80% of your income comes from such a small group of clients you should make sure you know who they are. You can achieve this with an Integrated Client Database. This is CRM software that includes accounting capabilities. You can run reports to spot customers who are providing a large part of your income and take steps to ensure they continue to do business with you. Send them special invites, exclusive offers and regular courtesy calls. These clients are the backbone of your business. Your Integrated Client Database will not only tell who they are, it will give you the tools to treat them like kings.
While you should dedicate extra time and effort to your very best customers (the top 20%) this doesn't mean you should ignore your mid level clients (the other 80%). Instead use your CRM software to put these clients on autopilot. Use your integrated client database system to automate email notifications, direct mail campaigns and follow up calls. If you use a manual ordering system, try to move these clients to an automatic payment set up. This will lower your workload and unlock time to spend loving your high value clients or trying to find more top 20% customers.
Finally the 80/20 rule also works both ways. Just as 80% of your income comes from 20% of your clientele, 80% of your headaches can be traced back to a very small group of clients. And these difficult clients are rarely your high value clients. If you really want to minimize your workload, identify these demanding clients and consider dropping them. Most small businesses will know who these clients are immediately but in larger businesses it might not be so apparent. Use your integrated client database to track which clients that are causing the most problems, taking up staff time and creating the most delays. Quite a few integrated client databases have time tracking modules so you can see how much time your staff invest in each client. This gives you the opportunity to asses how much profit is derived from each customer and the confidence to sack clients who are more trouble than their worth.
By using the 80/20 rule together with CRM software you can boost profits with your existing resources. By finding out what each client is worth you can allocate the bulk of your efforts to looking after your top customers and acquiring additional high value clients. You can move the other 80% of mid level customers on to autopilot, using database features like automatic ordering to reduce the work required to process each order. And finally you can easily identify problem clients, assess whether they cost your organization more than they are actually worth and take appropriate action.
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