More Customers Doesn't Mean More Profits for Your Business

Pareto's Principle is a wonderful concept, isn't it?

The 80/20 rule applies to just about all income - related business, for example:

80% of your income will come from about 20% of your customers.

80% of your revenue will be generated from about 20% of your sales staff.

80% of your customer complaints, and headaches, from about 20% of your customers.With that in mind, should we fire 20% of our customers each month, year, or decade (depending on the size of business)?

Think about that, what if we fired the bottom 20% of our customer base each year? We could focus more of our attention to the top 80%, and follow up marketing and customer service could have more positive effect, for more profits from less customers.

But hold on to your seat. That is way too easy. I am supposed to challenge you with the posts in this blog...

Look at the first bullet point. Analyze your own business. From what customers does the majority of your revenue come from? I will bet that it is close to the ratio in the first bullet...with 80% of your revenue coming from only 20% of your entire customer base.

But let's be conservative here...and assume that a business does 60% of it's revenue from 40% of its customers...

What happens with the other 60% of this business' customers? There are a few that spend little bits of money with the business, few that buy some things and get refunded on the majority, and then we reach the bottom 20%. We already have identified that 80% of your complaints, returns, headaches, etc...come from 20% of your customers.

So...with that in mind...I would recommend focusing 60% of your resources on the top 40% of your customers, if your analysis proves that your revenue is coming from them. The remaining 40% can be divided amongst your "middle tier" customers...and the "bottom tier" according to this analysis would simply be allowed to purchase, but with minimal resources (i.e. customer service, marketing, etc...) dedicated to them.