In his Are You Selecting Your Customers…Or Are They Selecting You? presentation at CSIA 2010, Dean Streck, CEO of V I Engineering, Dean starts with recommendation to ‘Know Thyself.’ You must first figure out who you are as a company today and the company that you want to be. Then, you can be proactive about selecting the customers that will help you achieve your goals. In part 2, he then describes methods to ‘Know Thy Customer.”
The 80/20 Rule
The role 80-20 rule, also known as the Pareto principle applies. Business management thinker Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population. It is a common rule of thumb in business: 80% of your sales come from 20% of your clients.
Whale of a Tale
Dean goes further to show that your top 20% of your business actually generates 180% of the profits. The middle 60% of your business is basically breakeven. And bottom 20% of your business loses the 80% of potential profits.
So What Then Must We Do
The revelation that 20% of your customers generate the bulk of your profit and the ‘other’ 20 percent cost you most of that profit, then raises the question. What should I do about it? Should I just focus on the top 20%? Should I fire the rest? What about everyone in between. In the next couple of posts, we will look at techniques to deal with these issues.