If you grab any company’s client list you will likely discover that 80% of their revenue is derived from the top 20% of their clients. There are some very easy-to-discover factors that drive the Pareto principle here.
The primary factor is likely the fact that your top 20% of clients spends significantly more than the bottom 80% of your clients in your category. But that's only one part of the story. Don’t let the obvious answer prevent you from understanding and acting on a more important truth.
Take a closer look at your client portfolio and you will discover that your top 20% of clients have a greater perception of the value that you create.
You will notice that what you do works so well for the top 20% of your clients that it allows you to make a significant contribution to their results. You are an integral and strategic part of their value chain. Isn’t this true of your top 20% of clients? Isn’t it true that you have stronger relationships with these clients? Isn’t the value that you create for them something greater than economic value alone?
The perception of value is what drives the acquisition, growth, and retention of top 20% clients. There is an important lesson about value creation here, but learning it means starting at the other end of your client list.
Start at the other end of your client portfolio and you will find two things. First, that some clients in the bottom 80% of your portfolio don’t appreciate the value you create. It’s not that what you do isn’t valuable at all. It’s the fact that what you do isn’t valuable enough.
Maybe what you do doesn’t really help these clients compete in their space. Maybe they buy what you sell because they need it, but what you sell really can’t create all that much value. These clients don’t spend a lot with you because they don’t need to spend a lot with anyone. There’s not much to talk about when it comes to these clients. But now that we’ve eliminated them, we can work on the real opportunities for insight.
If you are honest, a deeper look at the bottom 80% of your clients will reveal that there are some clients for whom you simply aren’t creating enough value.
The reason you aren’t capturing the real value of these clients is that you aren’t working hard enough to create value. The reason these bottom 80% clients can’t perceive the value that you create is because it isn’t there to be perceived.
And why aren’t you creating that value? Some of these clients may not be spending with you because they are challenging to work with; you may have given up. Other bottom 80% clients may not be spending simply because you aren’t giving them the time and attention they need. Many of the clients on the bottom of your client list are going to grow–and you with them– but only when you begin to create a higher level of value for them.
The lesson in the bottom of 80% of your client portfolio is that the key to moving them up is found in your ability—and desire—to create more value for them.
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