Even in America, not all customers are created equal. If you apply the "Pareto Principle" to your sales department, you're likely to make two discoveries: 80 percent of your revenue comes from 20 percent of your customers and 80 percent of your sales are generated by 20 percent of your sales team.

The ratio varies by industry, and for some companies, the concentration of results is extreme: 0.5 percent of car rental customers rent some 24 percent of cars; the top five to 15 percent of long-distance callers make up to 60 percent of all long-distance calls; at some banks, the top 25 to 30 percent of customers account for every nickel of profit.

Without a strategy for concentrating on your trophy clientele and putting the rest on the back burner, you could be spinning your wheels to meet the demands of the most troublesome, least profitable customers.

In high-transaction businesses -- financial services, retail and travel, for example -- it's important to efficiently allocate sales, marketing and customer service resources to beef up relationships with the most important customers. Your long-term success hinges on strengthening the loyalty of these valuable customers. In fact, some companies have even adopted a policy of "firing" their least profitable customers and found an enormous boost in both the corporate bottom line and their employees' satisfaction.

Here are four principles to make your staff smarter and more successful at swelling your revenue stream.

Principle 1: Pamper your top buyers. This will pay dividends in the long run. For example, preferred customer packages at a hotel could include fast check-in, rooms based on past preferences and other perks. Customers at a service station who buy a certain amount of gasoline a year might be offered a free oil change. This 20 percent group is most likely to recommend your business to family, friends and colleagues.

Principle 2: Know your real estate. Focus on the areas of your business that produce the most sales. Take a tip from McDonald's: Founder Ray Kroc pared the restaurant's menu down so that the restaurant offered only what sold. That let McDonald's focus on quickly serving just what customers wanted.

Principle 3: Target your marketing. Some ads just don't pay off. In fact, eighty percent of your new leads probably come from 20 percent of your ad spending. Direct mail has a broad reach but often winds up in the trash these days. So target your top customers with media ads, e-mail and cell phone alerts, and Internet leads.

Principle 4: Work smarter. Solve the 20 percent of problems that cause 80 percent of your troubles and you'll see a big return. And small problems might just solve themselves when the bigger pieces are in place. Establish specific sales goals, plans for reaching them and clear responsibility for achieving them. Base the rewards, including commissions, on results.

Of course, you can't ignore 80 percent of your clientele. But you can trim the amount of time and effort you spend on customers who aren't motivated to buy.

This doesn't mean you should forget them, but if you're going to focus on your trophy customers, you need to find the extra time somewhere. Try to keep your entire customer base motivated -- and informed -- with newsletters, brochures and e-mails. Offer incentives to come back. And be sure to notice when some of those customers drift into the top 20 percent. Although they don't belong to your elite, they have potential.

The Pareto Principle in Action

Vilfredo Pareto was a 19th-century Italian economist who discovered that 80 percent of the world's wealth belonged to 20 percent of its population. In modern business, the 80/20 rule is applied in a variety of situations, including:

  • 80 percent of company problems come from 20 percent of troublemakers (people, machines or situations).
  • 80 percent of a manager's time is paper work, 20 percent managing.
  • 80 percent of customer problems come from 20 percent of customers.
  • 80 percent of personnel problems come from 20 percent of employees.
  • 80 percent of your results come from 20 percent of your effort.


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