How to Use the 80-20 Rule to Increase Your Business Profits

Have you ever asked yourself these questions:

1. How well do I know my customers?

2. Which ones are the most profitable?

3. Which ones take most of my time?

It’s worth taking the time to find out. If your business is like most, the 80-20 rule applies. That is, 80% of your profits come from 20% of your customers.

If you can identify that top 20%, you can work hard to make sure this group remains satisfied customers. Sometimes all it takes is an appreciative phone call or a little special attention. Also, by understanding what makes this group profitable, you can work to bring other customers into that category.

Keep in mind that it’s not always profits alone that make a good customer. Other factors, such as frequency of orders, reliability of the business, speed of payment, and joy to deal with are important too.

There’s another way in which the 80-20 rule applies to your business. Very likely, 80% of your problems and complaints come from 20% or fewer of your customers. If you identify those problem customers, you can change the way you do business with them to reduce the problems. Consider changing your pricing for those customers so that at least you’re being paid for the extra time and effort they require. Sometimes the only solution is to tell these customers that you no longer wish to do business with them.

The bottom line is that understanding your customers better can only help your business. Contact us if you need help analyzing your customer profitability at jillian@jmvfinancialservices.com or sign up for a free conversation by clicking here.