...and why that’s a bad idea.
Like most business, you likely spend an extraordinary amount of time and money trying to attract new clients, in most cases, really hoping to land the next big one…
The 80:20 principle lets us know really quickly that that’s a terrible idea, because big clients tend to be less profitable (as a percentage) than others and you may recognize the symptoms:
Big clients are not profitable because:
We give them discounts – usually because they demand them
We give them terms, effectively funding their operations.
They increase complexity, because they ask for stuff that’s not on our shelves.
Oh and they tend to be full of it too, keeping our staff busy running around for them, because they feel so important.
Can you see how quickly this adds up to erode profitability?
For now, know that 8020 CAN and WILL help with finding new clients too… and that is attractive to so many businesses, but before you do that you should know which clients you really want to attract.
But chase down the turnover and you’re in for a long and bumpy road indeed.
So what’s a better and far more lucrative and enjoyable strategy?
1 Unlock Cash Now - Start by looking internally
One of the most powerful insights to come out of the 80:20 principle is that: 1 in 5 of your existing clients is willing and able to pay you 4 times more for the right value…
This may or may not feel true for your business right now, but I find its almost universal. Either your clients don’t know the full extent of your services and so only buy a little of what you offer, or they have grown (maybe even because of your services) and you haven’t revisited them to ask if they need more. Either way, there's money waiting there to be collected.
A simple revisit to your existing client base could yield an extra 20 to 30 percent turnover in a matter of weeks. The really nice thing about this is the expense is way less than marketing for new clients and most business can accommodate another 20% in sales without incurring more fixed costs, so this little gem of an exercise should make the Gross profit drop straight to the bottom line.
But you must use some logic here, you don’t want to be revisiting all of your clients - that will take too long and won’t yield the results – you need an 80:20 approach to your planning too.
It’s not terribly strategic but the clients love the extra cash flow and we can demonstrate the power of 8020 really quickly while we get to know each other, and I get to know the ins and outs of the business.
2 It’s a sell new (more profitable) products to existing clients.
This next stage is way more strategic… Again, borrowing from 80:20 we’ll find that 80% of our real (Net) profits come from just 20% of our product or service mix. Here we investigate the product offering and mix as well as opportunities that lie in and adjacent to the business that are currently under exploited. Essentially, mapping the (true Net) profitability of each of the products within the business and then we simply move the focus for of our activities towards these more profitable products.
3 is Scale – With your (now) profitable commercial model sell more to (the right) new clients.
As we established right up front, your sweet spot (profitable) clients are not your biggest ones, find the sweet spot clients and sell like crazy to these.
If you like these ideas and want to investigate further, request a Free Consultation with me or signup to my 5 day course