Developing Customer Focus Will Focus Greater Returns in Sales Revenue

By Janice B Gordon | Customer Retention

Jun 30
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In this second part of Why is the  Customer Focus Strategy Your Best Strategy Right NOW. I will detail how you can use the Focus Strategy to double your sales revenue without increasing costs and the Scale Your Sales 7 steps to developing your Customer Focus Sales Strategy.

The focus strategy is to identify the characteristics of the top 20% of your customers said to who represent 80% of your sales. The principle is that if you look after them and understand them better, you can not only focus your acquisition strategy on finding more customers like them but retaining and growing these customers dramatically increases your net sales revenues and profits.

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The analysis that Perry Marshall showed in his book 80/20 Sales and Marketing demonstrated the exponential nature of the Pareto Principle.  Such that the top 20% of the top 20% of your customers, or the top 4% overall, represents 64% of your total sales (64% is calculated as 80% x 80%).

If you could identify the top 4% of your most valued and key customers that contribute 64% to your total sales revenue, why wouldn’t you? If you focused on and delighted this proportion of your most valued customers, then you would secure a large portion of your sales revenue long into the future.  In addition, you would reduce your cost and save time and energy servicing less profitable customers. The 80/20 of Sales is:

  • 4% of customers return 64% sales
  • 16% of customers return 16% sales
  • 80% customers return 20% sales (60%/20%)

 

How You Can Use the Focus Strategy to Double Your Sales Revenue Without Increasing Costs

As a priority analyse 80% of less profitable customers and segment the bottom 20% and reduce cost and investment in this segment. Decide which relationships you are happy to dissolve and if any are worth retaining; the decision is easier if you know which of the bottom 20% of customers breakeven and which are loss-making and costing the company more than they return in revenue.

If you then analysed the remaining 60% of customers and found more to be border-line breakeven and segmented those customers that contributed to the 20% return of sales revenue, then you can make better investment decisions. This may involve a revision of sales methodology and channel and negotiate the channel partnerships or to eCommerce offer. Leaving the core sales operation to invest in developing customer relationships and growth opportunities for your most valued and key customers with the highest potential. You now have the potential to double your revenue from your existing customers without significantly increasing costs.

  • What would happen to your long- term revenue predictability if you secured one more most valued top 4% customer relationship?
  • What would happen if you nurtured and delighted existing relationships that had growth potential and opportunity within 16% customer and your focus move them into your top 4% customer category?
  • What would happen to your sales results if your focus strategy turned a 60% customer into a 16% customer?

I hope you can begin to see how a focus strategy can reduce the cost of acquisition by not having to replace lost valued customer and short sales circles from known and trusted relationships. The Scale Your Sales Focused Strategy helps identify key and most valued customers into segments and with the focus on each segment characteristics and personalities, develop growth strategies relevant to their current and potential return and circumstances.

I am not advocating to ignore your 80% of customers; the first thing is to recognise where your customer sits in the customer segments you have created and then to devise engagement strategies that invest the correct level of resources and service aligned to the customer return on business investment. But not to stop there, you must assess the future of all your customer relationships and the opportunities they could deliver.

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How to Apply the Focus Strategy

As we have just experienced with the global pandemic, the future is unpredictable, not only for the supply company but for your customers and their customers. One reason to bet on the right customers and invest in the areas of your business that has the tremendous long term revenue return and potential. This means looking at your inherent competitive advantages that have a place in the future and aligning these strengths to where you believe your key customer’s needs will grow.

Not only must you understand the macroeconomics of the global markets but the micro customer factors that play to your strengths. You must know your key customer business strategy, strength and weaknesses and personalities and align all this information to your business strategic plan. If you are investing in a customer relationship, you must know why you have made this decision to invest whether to secure or to develop and what the expected return will be and the payback period. Harvard Business Review calls this the value exchange: the relationship between the financial investment the customer return on this investment.  You can only manage the value exchange if you understand how all three elements

  • The supply company strengths
  • The customer needs, and
  • The market challenges.

all aligned to support the supply business growth mission.

You may want to satisfy all our customers equally, but not all customers are equal!

Some do deserve more of your attention and investment. There is more to be gained from applying a focus strategy, and that is in the exponential power to the second or third degree. You can, with the focus strategy 10x the customer returns your investment. As a minimum, your goal is to identify and focus on those top 20% of customers who are essential for your current and future business prosperity. The seven steps below will help you to determine the customers which warrant your focused attention.

Scale Your Sales 7 Steps to Developing an 80/20 Focus Customer Sales Strategy:

  1. Record and analyse sales data on all your customer purchases.
  2. You should know which customer purchase Recently, Frequently and the value of the purchase.
  3. Analyse this data to find your 20% of customers that are of most importance to your business and which are of least value and which have the most future potential.
  4. There will be trends that form categories of customers into the segments of 4+16 | 60 | 20 or most, average, and less valued customers and cost of customers or Premium, Standard and Threatened.
  5. Develop a profile of the character of your most valued customers; these are your best 20% of valued customers that return disproportionately in your business.
  6. Potential customers are those that have the potential to give you a higher frequency and value and could become your most valued customers. Mine your entire list of customers to find potential unrealised opportunities and reduce investment in the least profitable segment.
  7. Develop a strategy to develop your potential customers and maintain or grow your most valued and use the profile to secure more of your 20% of customers.

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Focus on the Most Profitable Customer Segments and Develop Opportunities to Future-Proof Sales Revenue

 You will find some customers that do not warrant but demand more of your attention; conducting this analysis helps you to develop data-backed strategies which allocate the appropriate level of resources to each customer.

Pareto’s Principle state that 80% of your sales come from 20% of your most valued customers. You must know which of your customers are the top 20% and have a clear strategy to secure, maintain and grow these customers relationships if the company is to gain significant growth in sales revenue. Developing a focused approach will enable you to build on your most valued and key customers relationships with confidence and to secure predictable increasing profits.

If you like me, you believe “what you focus on will expand.” If you focus on your top 20% most valued and key customers, you will expand the value for these valued relationships and gain the benefits long term predictable sales revenue.

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About the Author

Janice B Gordon helps enterprising companies adapt their sales approach and grow key customers. This has led her to create the popular Scale Your Sales framework. Janice is the Customer Growth Expert an Author, Educator and Consultant ranked 25 of the Top100 Global Business Influencer 2017. Contact Janice to talk about Scaling Your Sales.