You know about the “80/20 Rule.” I’ve touched on it many times in this blog. But it’s such an important concept that I’ll expand and explain it in more detail. The 80/20 Rule is part of Marketing 101. The rule is this:
80% of sales come from 20% of customers.
80% of commissions are earned by 20% of salespeople.
80% of the wealth in America is produced by 20% of the people.
80% of sales are generated by 20% of the businesses.
80% of your income is produced by 20% of your activities.
80% of your revenue is generated by 20% of your clients.
80% of donations are made by 20% of the donors.
The reason for this is fairly obvious.
If you observe human behavior, you’ll immediately notice that about 20% of the population is pulling the wagon — that is, doing about 80% of the work and generating 80% of the wealth.
Everyone else is riding the wagon, hoping someone else will pull them along.
The great majority of people don’t have the guts or energy to start their own business. Most people would rather ride along on someone else’s wagon, happy enough in their 9-to-5 job and collecting a regular paycheck every month, while doing as little as possible to earn it.
In the charitable arena, the rule is the same. About 20% of the population are givers. The rest of the population are takers.
Actually, the “80/20 Rule” is more like the “90/10 Rule” if we were to really analyze the facts carefully.
But if you were to break down the population even more precisely, you would see that the top 10% are the true producers and givers — the true wagon pullers. There’s middle 60% who are happy to ride in the wagon most of the time, but will help out once in a while if they are shamed into it. And then there’s the bottom 30% of the population who must be dragged behind the wagon in the dirt. These are dead weight who actually hinder progress.
So now let’s rename our rule of life the 30-60-10 Rule.
- 30% are dead weight you are pulling along in the dirt.
- 60% are riding in the wagon, not doing much, but not hindering your progress either.
- 10% are doing 90% of the pulling.
The #1 mistake businesses make is to focus too little attention on the 10% of customers who are providing 90% of your income — and too much attention on the rest who aren’t profitable for you at all and, most likely, are costing you money.
The tendency is to take your best customers for granted. “We don’t have to worry about these customers because they love us already,” is the thought process at work here. We get lazy with these customers because we know these customers are profitable. We then invest enormous effort and resources to try to make our money-losing customers profitable. We continue to send these money-losers newsletters and mailings. We continue to coax, cajole and bribe in the hope that these people will, someday, become interested in what we are doing.
We make the dead-weight money-losers the focus of our marketing.
What a catastrophic mistake this is!
One of the quickest, easiest ways to increase your profitability is to immediately cut loose the 30% of the dead weight, the people (customers and employees) who are costing you money, and will never be profitable no matter what you do. Just get rid of them and at least make your wagon lighter to pull.
Your next step is to give your top 10% or 20% a lot more tender loving care and to offer more and more of whatever it is that makes these gold-plated customers love you so much. If they like milkshakes, keep offering them bigger and bigger milk shakes. Don’t think, he’s already had his milkshake for the month, so no need to offer another milkshake until next month. Keep feeding your gold-plated top 10% of your customers more and more of what you know they love. And treat them as the dear and loyal friends they are to you and your business — because you can’t survive and prosper without them.
Why is it that most of us are so obsessed with trying to win over the bottom 30%?
Why is it that we are more concerned with trying to turn the dead weight we’re dragging along in the dirt into wagon pullers?
I think it’s because entrepreneurs are also evangelists at heart. We are so excited about whatever it is we are doing and the service we are offering that we just can’t believe most people could not care less about what we are doing. We try to win them over. We are preachers who want as many people in church as we can get. We try to convert these people to the faith. We try even harder to win back our “lost sheep” — our former customers who left us. We just can’t believe they left us even after all the great service we provided. It’s depressing to lose a customer. Rejection is always depressing. So we spend a lot of money and effort trying to get these “lost sheep” and “prodigal children” back into the fold.
The reality is you will never turn a wagon rider into a wagon puller. And you will never turn dead weight even into wagon riders, much less into wagon pullers. We are genetically wired to be who we are. We were that way at birth.
You are far better off cutting loose the dead weight immediately. In fact, you would be better off getting rid of most of your wagon riders. They aren’t much good to you either. Keep a few of the wagon riders around who show some potential of being wagon pullers. And then focus 80% of your efforts on your top 20% — your very best customers and clients.
Of course, you will always need to prospect for more customers. You always need to find new prospects to pour into the top of your marketing funnel.
But you must do this knowing that only 20% (or less) of your new customers will ever be worth much to your business.
Can you see how clearly understanding this principal can affect, even dramatically change your marketing approach — might even change your business model.
With this principle in mind, your job is not to work to turn your dead weight and wagon riders into wagon pullers for you, but to develop a system that will . . .
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Happy Improved Marketing,
Ben Hart
