The 80/20 Rule (also known as the Pareto Principle) states that 80% of the output comes from 20% of the input. The Rule has been found to apply to many areas of life, and business is one. Look at your own business and you will likely find that 80% or more of your business comes from 20% of your customers or clients.
In view of the 80:20 Rule we must clearly focus on maintaining or improving our relationships with key accounts, while also looking to add to their number. Too many focus too much on attracting new accounts, sometimes at the cost of existing accounts’ loyalty. The Trusted Advisor (Maister et al) argues that “the cost of developing new-client business is 4 to 7 times higher than the cost of developing the same amount of business from an existing client”.
Many companies continue to focus on tried (or is it tired?) and trusted measures for managing key accounts and estimating future business. These include account size; account growth; account profitability; payment record; repeat business. The problem with such measures is that they are typically backward looking. They tell us what has happened, and as we all know from the mandatory warnings of investment advisors, past performance is no guarantee of future performance. In the same way we ignore these warnings, we ignore other useful performance measures available to us.
One such measure is the Meeting Assessment evaluation tool derived from Smarter Selling (Dugdale and Lambert). The tool assesses the degree to which your behaviour in meetings and conversations with people at your key accounts, is indicative of particular types of relationship. The type of relationship indicated is a good determinant not only of your current business performance but also the future.
So what are the four types?
You may have some customers you enjoy spending time with. You meet outside work, chat over many non-business topics and have quite a close relationship. You may think this type of relationship is easier to turn into business. However, if you don’t handle with care, the business result may not be very satisfactory and can bleed personal time and money. The most common social relationships are with senior executives who are wined, dined and entertained by you, and by your competitors. You may think they like you, but is it really you that they like? How easily could someone else tempt them away?
You know the people involved, but see them rarely. Sometimes you get unexpected urgent orders. They see you as an expert provider of a specific product or service and they call you only when they need you. You have no visibility of their future business direction and they feel no loyalty to you. Sales are treated as a bonus, but because of their unpredictability and urgent nature, requests can put a strain on you, your team and your organisation. The customer or client is very focused on price and you may be easily displaced by competitors who can offer similar products or services at a more competitive price.
Customers buy from you regularly because they value your product or expertise, but they do not buy as much as you would like. You know how they use your product or service, but you do not understand their broader business. They like your product or service but they do not connect with you on a personal level. Conversations tend to be narrowly focused and do not offer up new opportunities. They may even find your knowledge and expertise intimidating. Your “share of wallet” is not as high as it could be as opportunities are being left on the table.
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