Tuesday, March 9, 2010
Playing the 80/20 Odds
by Duncan MacPherson
You are perhaps familiar with the 80/20 Rule. That's the rule that asserts that 80% of your income is derived from roughly 20% of your clientele. But did you know that there are other versions of the 80/20 rule as well? I'm going to tell you about two more ways you can make the 80/20 rule work for you. If you spent most of your time mastering the nuances of just these three rules, you can end up with a predictable, sustainable and duplicable business.
80/20 Rule #1: Assets
I won't spend too much time on this well-trodden variant of the 80/20, but let me just say to those who dispute the fact that you should spend 80% of your time on the top 20% of your clients: You are doing this elite group (and yourself) a gross disservice. Any group that pays 80% of the 'freight' deserves 80% of the time and attention, end of story. By looking after your top clients, you look after 80% of your income, which ensures that your business stays strong.
80/20 Rule #2: Lifetime Value of a Client
I often remind my staff that bringing on a new client is no reason to celebrate (well, a little celebrating is fine, but try and stay focused). I remind them of this because of the second variation on the 80/20 Rule, which states that gaining a new client brings you only 20% of the lifetime value of that client. The other 80% of the client's lifetime value comes from the steady stream of quality referrals that the client can provide to you over the lifetime of your relationship.
Of course, you will only earn these referrals if you nurture the client properly. But this is where the 80/20 rule works for you, because for you, 80% of the effort is spent in convincing the new client to do business with you. It only takes 20% of the effort to maintain the relationship and to benefit from the stream of referrals.However, here's the catch.
You need to make the client feel like they are part of an 'exclusive club' because of your extremely high level of service, and the service must be CONSISTENT. Furthermore, the client must be repeatedly exposed to a dedicated Recommendation Process that explains how your referral process works, and this process must convey a benefit to the client.
Without the Recommendation Process, you won't achieve your goal, because even if you client's want to recommend you, they won't know how to. And if you provide great service some of the time, but not all of the time, your clients again won't recommend you, because they will want to wait until they are sure that their friends and family will receive great service all the time. Don't forget that clients will always ask themselves ""what have you done for me lately?"
80/20 Rule #3: Productivity
On average, most people accomplish 80% of their work in 20% of the time they actually spend at work. Think about it, and chances are, you'll agree. And you can use this fact to your advantage. If you take the time to schedule your time, to map out your year, your week, and even your day, you will account for each hour. And you will have the means and the incentive to make the best use of your work time - and of your non-work time. Have you ever noticed how productive you are a few days before you go on holiday? If you schedule time to do the things you want to do, then you will accomplish what you need to in less time.
Vince Lombardi once said that you have to be brilliant at the basics. If you were to spend 80% of your time and energy trying to 'work' just these three rules, what kind of business do you think you'd have?
Don't forget to join Duncan live on Wednesday, April 28th as he shows us some of these ideas in action!