How Valuable are your Customers to you?

You've heard of the 80/20 Rule, right? Have you ever successfully applied this Law into making a decision on who you will allow to become your customers?

I'm sure this probably doesn't apply to you, but most people have no clue about how to apply this Rule. You may want to consider this. If only 20% of your customers currently give you 80% of your business, then why are you spending 80% of your time with someone who will only give you 20% of your sales?

Let's look at an example. Let's pretend you're generating £1m (or whatever currency you choose) from 100 customers. If the 80/20 Rule was to be applied here, 20 of your customers will be creating £800,000 of sales. That's approximately £40,000 of value per customer. These are the best customers who will also give you the least amount of grief and hence will take the least amount of time to service. I call them 'Saints' because, in my business, they keep my bank manager happy and my ex-wife at off my back.

On the other hand, 80 of your current customers only generate £200,000 of revenue. Therefore, each customer value is approximately £2,500 each. What?!! Shock! Horror! You don't have to be a rocket scientist to work this one out. These guys and gals are giving you a measly 6.25% of what the Saints generate for you. Here's the catch with these 80 customers: they eat away at your most precious asset and the most scarce resource - time.

So who are the different customer types that will try to cross over your threshold to strangle your profitability?

You know what? It doesn't matter. What you will recognise is that they all have one common theme - they will steal your time by either trying to get *free* consulting, requesting to meet you on their terms, be too cowardly to make a decision one way other or just never trust you enough to be of much value to your business. And, I kid you not. You are in business so you and your loved ones can enjoy the benefits of profit creating profits. If you have the desire to want to help anyone and everyone, join the Samaritans.

Carrying on with the above example, what do you reckon would happen if all 100 of your customers spent £40,000 each? I'll make it easy for you. Your sales revenue will shoot from £1m to £4m. Not bad, hey? Here's a little problem: the 80/20 Rule will continue to apply. This time, 20% of your customers will still give you 80% of your revenue. Now there's a problem I'm happy to embrace with both arms. Your Saints will give you referrals for people like themselves or even more successful.

So here's today's tip. Identify who your Saints are. You will recognise them by several give-away signs:-

• Thy are your happy customers
• They give you 20% of your sales revenue
• When asked, they will give you quality referrals

In the next blog, I will share with you how you can ethically cull time stealers from your business. In the meantime, what are you waiting for? Start to identify who your saints are.

Harun 'The Persuader' Rabbani

PS If you're not interested in raising your game in creating a referral-centred business, then you're probably going to waste your time by coming to the Referral Explosion Summit™ on 15th November 2006 in Birmingham. However, if you feel you could do with increasing your profits right now, then this 3 hour workshop will be perfect for you.

PPS This will be the last Referral Explosion Summit™ of 3-hour duration and at £147.00 (+ VAT). From 2007, this programme will be full day Summit with a proportionate increase in investment.