Now we know the 80/20 rule is occurring in many parts of our lives, how can we best use it to our best advantage in business? A prime area of business is customer and client management.
Remember when we said that 80% of sales comes from 20% of customers? We can use this to begin categorising our customers with “top” customers being the top 20% of revenue. What’s left is the rest of our client base where we need to find different levels of customer types to work with and cultivate.
Clustering clients
A robust clustering tool is the A-B-C-D Client Model. First look at your business and put together a list of what your ideal client looks like. Once you have that list then you can cross reference it against the clients in your database.
Here’s how to categorise your clients once you have your ideal client list in hand:
A - Amazing Client. These are the people who you love working with and get you up in the morning. They pay well, refer you onto other clients, who bring you more business. These clients really like what you deliver, and they come back to you repeatedly becoming a “raving fan” of your business! Your team provides them with excellent service - that “plus one”1 - giving them extra effort because they are worth it.
B - is for B Grade Client. Not quite a raving fan, but still provides as a significant contribution to your business. Second place, in this case, is a good thing. It means you may be on the verge of making this client into an A-Grade client. Your team gives your B Grade clients a fairly good amount of attention. These clients are happy with your service and they represent a healthy volume of sales.
C - Cut or Cure Client. This client is at a crossroads. You question whether you should I cut them loose or cultivate them over time. A Cut or Cure Client could go either way. They could be a client that you could work on in small doses, over time, and monitor to see if there is any increase in sales. They could move up a level or two which is terrific. Or, on the other hand, you may find yourself in the difficult position of moving them down to cutting them loose, to D Client because they just ain’t making the grade.
D - Delisted Client. Harsh but necessary category. Delisting a client could mean that you have tried to work with them but it’s just not working out. They could come from the “C” group above. D Clients are ones where you part ways. How do you know when to cut the cord with a D Client? Easy. They aren’t paying on time, or in some cases not paying at all. They have many complaints that are often unsubstantiated. They are a vortex of time and are a massive drain on your resources. Better hand them over to your competitors and have them deplete their resources so you can concentrate on your A-B-C clients.
When you examine your client list and the number of A’s B’s C’s and D’s you have, you may find you have a small number of A’s, so look at your business as a whole, and find out why that is happening. The aim is to develop as many A’s as you can. Do you have a small number of A’s because you are servicing D’s or are focussing on keeping your C’s? Have you given your C’s and B’s enough reason to refer you onto others (so they can shift up to A’s)?
With a clear understanding of how much value each client gives your business, your sales team can work with those viable groups to up-sell, cross-sell and diversify products and services across the A’s and the B’s. And on a smaller sales effort can be logically placed on curing or cultivating those C’s who have the potential to develop into a long term partner. Dividing the amount of sales management time spent on the clients makes financial sense. It ensures you are avoiding those clients who aren’t helpful and reinforcing those A-B, and possibly some cured -C, clients who are proven to provide your business with long term stability.
References:
1 Blanchard K. and Bowles S, A revolutionary approach to customer service: raving fans! 1998 Clays Ltd St Ives PLC. Great Britain (pp 101-102)
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