Friday, September 9, 2011

The Pareto Principle Goes Practical: How To Sell More To Your Best Customers

Lots of business writers and gurus have written about The Pareto Principle, which holds that 80% of your business will come from 20% of your customers. I've written about it too in the past, but I only recently found out who Pareto was. According to an entry on Wikipedia, he was Vilfredo Pareto, an Italian economist who observed in 1906 that 80% of the land in Italy was owned by 20% of the people. From there, he went on to notice that 20% of the pea pods in his garden contained 80% of the peas.

The idea seems to be that if you want peas, you have to know which pods to pick. And a similar principle applies to customers. If you want to sell more, you need to pick the 20% who are most inclined to buy from you. In other words, your most productive customers.

The difficult task is knowing who those customers are. But I recently gained some good ideas from a blog, "Increasing Small Business Sales — How Profiling Can Help You Boost Your Sales," that appeared on the Small Business Advertising Strategies Blog. Here are some of the blogger's tips for directing most of your selling and marketing efforts at your best customers:

  • Strategy One: Distribute loyalty cards. For example, a customer who receives a $5 gift card from Starbucks is much more likely to buy his or her next cup of coffee there. And if you give $50 gift cards to patrons who you have seen in your restaurant a second time, they will come back at least once, and maybe more often. (They will probably also spend more than $50 on that meal.) And as the Small Business Advertising Strategies Blog states, you can collect valuable data on your best customers at the time you give them their cards.

  • Strategy Two: Upsell. The blog tells the story of a carwash that offered unlimited free coffee, and then approached customers who were "hanging around" and asked them if they wanted to have their cars waxed too. So the message is that if you catch people in the act of buying, they could be part of that 20% you are looking for. So sell them something else.

  • Strategy Three: Be willing to lose a little money on current transactions. Maybe a customer is trying to return an opened package of tea, for example, or a pair of shoes that he wore. No matter, writes the Small Business Advertising Strategies blogger, who believes that "You have to look beyond the current transaction and measure the value that you will gain from it in the long term. You may be losing money in one transaction but if it means you are gaining a loyal customer for life, that investment is well worth it."

Thanks to & Edited by Diana Pohly / StepByStepMarketing


No comments: