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Focusing on The Most Profitable Customers with CRM
Focusing on The Most Profitable Customers with CRM

Focusing on The Most Profitable Customers with CRM

The Pareto principle is named after the 19th century Italian economist who first formulated it. He was interested in the distribution of land in Italy in his time, but it turned out his discovery was much more broadly applicable. Simply stated 20 percent of your customers produce 80 percent of your revenues.

It's important to understand that this isn't an inflexible law of nature and the division isn't always 80-20.  Instead the Pareto principal is a heuristic, a rule of thumb. However it turns out to be generally true. A fraction of anything accounts for a substantial majority percentage of the outcome. Or, more generally, a relatively small portion of your input accounts for most of your output.

This is counter-intuitive. We logically expect that all units of effort will return the same amount of results, being equally effective. However in case after case that turns out not to be true.

This also explains why in setting goals it is more important to concentrate on results than effort. A goal based on effort, such as the number of sales calls made or lines of code written, is less meaningful than a goal based on results, such as sales accomplished or milestones achieved.

Applying the Pareto principle to your company’s effort can make you more profitable with less effort. A business that concentrate on more profitable things and giving less attention to the less important practices you can produce more with less effort.

The conclusion from the Pareto principle is that 20 percent of your clients are the key to your business success. Your business will benefit identifying those 20 percent and make an extra effort to keep them satisfied.

A Customer Relations Management System will help you find out those 20%. A profitable customer doesn’t mean the one who buys more. Rather it is the one who brings in the most revenue. Some high-volume clients may not profitable at all because they are difficult to deal with it and take more time effort to service them.

This doesn't mean that you should totally neglect the 80 percent of your clients who don’t bring the most profits. But it is more logical for your business to put most of your efforts into your top 20 percent of your clients.

CRM will help you to focus on the top 20% of your clients with your marketing efforts. Using the CRM analytics tools in your CRM system you can identify your most successful marketing efforts and concentrate your marketing  efforts in those areas.

This principle helps you identify the kind of new clients you want to gain and keep. By analyzing your top 20 percent customers and their characteristics you can determine the kind of customers you want to go after and target your efforts accordingly.

You can test your marketing campaigns with Pareto principle. Twenty percent of your marketing efforts can be expected to produce 80 percent of the results. You need to find out which 20 percent of your marketing is the most successful and running comparative campaigns is a way to do that. A more general consequence of the Pareto principle is that you need to focus your efforts in all aspects of your business. Prioritize what is important and concentrate your efforts on that and you will be more productive with less effort.

 For more information please contact us.

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