80/20 Customers

Mostly agree about WF. But there are still several really sharp people here...real marketers.

As far as Ewen's information, it's absolutely spot on. One of the biggest gains I ever made in selling was identifying who was highly likely to buy, and not seeing the others.

Even in my store, I have a referral program that gives gift certificates for referrals, and for the new referred customers. But the original customer has to make at least a $399 purchase to get offered the deal. Why? Because people who spend more...know others who spend more. And, maybe the biggest benefit is...they only know others who spent a decent amount with me, so the higher dollar purchases are expected.

I had a friend in the mattress business (he had a store) and he advertised quite a lot. He was complaining to me that nobody was buying anything but the very cheapest mattresses.


I told him" Why would they want anything better? Your advertising is only attracting the low price shopper, and you complain when they show up. You are completely ignoring the people looking for a great mattress, and are willing to pay to get it."

Of course, that went against his grain, and he eventually went bankrupt.

You are mistaking how this works.

If you take the most profitable, active, result producing 20%, you will find that this exceptional top group again divides into an 80/20 split. But they will, as a group, still be the same group that is 80% of the profit from the original group. You'll just end up with a 20% of the 20%...which will give you a very profitable 4% that will be responsible for most of the total profit.

The point is that every customer group has a large percentage of unprofitable...or barely profitable customers, and a very small number of hyper profitable customers.

In the same way, most industries have a huge number of people barely scraping by, a small number of successful business owners, and a very small number of industry leaders.

It's always going to be that way, because a very small percentage of customers or sellers is exceptional.

80% of the books are sold to 3% of the adult population in the US. About a fourth of the adults never read a single book their entire adult lives. You can apply the 80/20 rule to almost any group.

Added later;
There is an exception to this. If you have a finite number of offers and a finite number of customers.

For example, you own a furniture store. You find that 80% of the buyers buy 20% of your selection. So you stop selling the losers and only sell the top 20%. That top 20% will now break down to another 80/20.

The problem is, you still have the same number of people buying, and the same number of sales. This is assuming that the prices and profits are the same all around.

In our store, we found the 20% of vacuum cleaners that 80% bought (although the percentages are skewed a little). We tried just reducing the number of items available, and only selling the most popular vacuums.

A problem arose. We used to have 5 times the selection. It was that image of a large selection that helped sell the 20%. When we reduced the number of available items, it lowered our overall sales.

so..the 80/20 rule is a good one in principle, but it doesn't apply universally.

For example, you have a choice of 5 offers for a prospect to look at. 80% of the time they choose the most popular offer. So you just reduce your offers to that one popular offer. The problem is, the image of choice has been lost.And that choice is integral to the buying process.

So I used to sell various items in different sizes but them I reduced that to one item, though in different sizes and with one upsell item. And what I changed about that then was I went from 14 different sizes eventually down to 7 sizes. Sales averages are up this year -- but mostly because of sales techniques. Prices have remained the same. Narrowed selections make the sale happen faster but also help "force" a selection to jump up and order what would have before been a few sizes difference where they would've landed lower. So that's been a factor in boosting the lower tier of orders up a bit.

So, speaking of the weeds who keep coming back, I found that those who cancelled appointments and rescheduled would either not keep the rescheduled appointment or not order for the most part when they did come in. The numbers showed they averaged half my first time client order. That's Grade C. So I started discouraging reschedulers from taking more of my appointment times that could be going to first time clients.