Why It's Important To Know Who Your Best Customers Are
The truth is that your customers are not all equal. And while you invest a lot of energy making sure every one of them receives the best product, highest level of customer service, and are all around happy to work with you, it’s important to be able to distinguish your best customers from the rest of the pack.
A general rule of thumb is that 20% of your customers generate 80% of your total revenue. This application of the Pareto Principle, or the 80/20 principle as it is commonly referred to, shows us that some customers are just more valuable than others. And they should be treated as such.
Perry Marshall, author of 80/20 Sales & Marketing, puts it this way, "We are all conditioned to always respond to the stimulus around us. So, if you obey the 80/20 rule, you are always going to feel as though you are ignoring something - because you are."
Your group of “best customers” earn you an amazingly disproportionate amount of revenue. A second group of “mediocre customers” are large and generate a fair amount of revenue, but much less on a per-customer basis. Finally, there is a group of “bad customers” that actually cost you to have because the revenue they generate is less than it costs you to service them.
We are all conditioned to always respond to the stimulus around us. So, if you obey the 80/20 rule, you are always going to feel as though you are ignoring something - because you are.
You should strive to eliminate your “bad customers” and find ways to avoid more like them going forward. We have found that many businesses with “bad customers” not only fail to generate enough revenue to cover their cost, but these customers are often some of the most demanding and challenging to satisfy.
You’ll find that as you choose to ignore “bad customers”, your organization will free up resources to use on acquiring and servicing more of your best customers.
Interestingly enough, Perry Marshall found that the Pareto Principle is exponential, that within the initial 20% that generates 80% of your revenue, the 80/20 rule also exists. This means that the top 20% of the top 20% of your customers (or the top 4% overall) represent 64% of your revenue. We call those the “best of the best customers”.
For most businesses, the goal isn’t to capture the entire market; the goal is to capture the most lucrative piece of the market. The only way to do this is to know who your best (and your “best of the best”) customers are. Once you’ve identified who they are, focus your marketing messaging, sales strategies, and offers that appeal to them.
Remember, you might still have the urge to be a “something-for-everyone” company; you might have a nagging feeling that you’re ignoring part of your potential customer base; fight it. Remember, all customers are not equal. You don’t want all customers. You want the ones that are best for your company.