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Greatest Hits: Forget the 80/20 Rule, It's The 20/20/60 Rule That's Important (posted 6/21/2010)

business advice

Everybody who's been in business for more than, say, 10 minutes or so has had the 80/20 rule drummed into their head. 80 percent of the sales come from 20 percent of the customers. 80% of the problems come from 20% of the employees. 80 percent of your shipments utilize 20 percent of your inventory. And so on. Some of the 80/20 rules are factual; others are baloney. It depends on the particular kind of business you're in. One rule that seems to hold true for every kind of business is the 20/20/60 rule. It's an important rule and it's not very well known.

Twenty percent of your prospects will love you and will immediately become your customers. It doesn't seem to make much difference what kind of business you have or what size it is. This rule is as true for restaurants as it is for machine shops. It's applicable to retail stores and professional practices, too.

You've seen this rule in action. Somewhere you have a competitor who is dumb, obnoxious, and technologically obsolete. Yet some of his customers stick with him anyway and won't switch over to you. 'Loyalty' is what you've been calling it. 'Love' is a better word for it. These customers love your competitor and won't switch until your competitor goes out of business. You, too, have some customers who love you. No matter how far down your company slips and slides, they'll stick with you. Companies operating in bankruptcy still have loyal fans.

Twenty percent of your prospects will hate you and never buy from you unless you're the only supplier left on earth. They may not even buy from you then - they may instead choose to live without your product or service. There is no rational explanation for this, except for the well-worn phrase, "You can't please everybody." You may also refer to this as 'bad chemistry'.

In any case, there are prospects out there who hate you. Or maybe they just love somebody else.

The remaining 60% of your prospects are those who are interested, but skeptical. They think that you might have something useful to sell to them but they need convincing. These are your most important prospective customers or clients, yet they are the ones we usually choose to ignore.

As businesses, we seem to spend all of our time and energy appealing to the two extreme categories. Perhaps we're designing new literature for our business. We always seem to create it to please the people, like Fred, who already loves us. Fred will love it and will probably give you lots of compliments about your new literature. So what. Fred already loves you and buys everything he can from you anyway. Treat Fred with respect and give him the good service he deserves as a loyal customer, but don't make him the target of your sales efforts. You should be designing your literature to reach out to the 60 percent of your prospects who are interested but skeptical. Your literature should answer their objections, resolve their doubts, and turn them into buyers.

Maybe you put all your energy into writing a great ad, e-mail response or sales letter thinking, "When Irma sees this, she'll change her mind." She won't. Irma hates you and nothing you say or do is going to change this. Stop designing ads for people who despise you; you're wasting your time. Irma will never consider you as her supplier. Instead, put your efforts into reaching out to those interested skeptics - give them a reason to buy your products or services instead of your competitor's.

Why do we fall into the trap of targeting the wrong people in our efforts? Part of the reason is we are urged to do so by lots of business books. Almost every book which has anything to do with selling or customer service has stories about sales turnabouts. These stories always talk about the Herculean efforts of a single salesperson to win over the account who repeatedly showed him or her the door. Such stories always have a happy ending with the reluctant prospect finally becoming a loyal and satisfied customer. These stories have great appeal to us because we all love unlikely stories with happy endings. We are all optimists at heart.

We love stories about climbing a symbolic Mount Everest but in real life most of us will not succeed as mountain climbers. In your business it's a better deal if you stay near sea level and play the odds instead of hoping for miracles. That's why you'll want to concentrate your efforts on those 60 percent - odds are they can be turned into customers.

Since everyone loves stories about success against formidable odds, here's one of mine. I once called on a small company who bought from my competitor. Their purchasing manager took an instant dislike to me. During our visit he remarked, "We'll never buy from you as long as I'm alive." Figuring that there was nothing to lose, I asked, "Well then, do you mind if I telephone once a year to see if you've died?" He got angry and threw me out. I called every year and asked for him by name, reminding him I was just calling to see if he was dead yet or was at least feeling poorly. It got to be a standing joke with us and he started to warm up to me. Five years later, he finally started to order from me.

This makes a wonderful story but it's a terrible example of how to sell. The reality was this guy never really became a large customer, still gave a lot of his business to my competitor and didn't pay his bills very quickly. I would have done much better investing my time and energy elsewhere. In my business career, I've probably wasted too much of my time on hopeless causes. I would have been better off if I had simply concentrated on those prospects who could be reasonably motivated to buy.

Learn from my mistakes. Concentrate your business efforts winning over the folks who can be won over - that magical 60 percent of your market that has a genuine interest in doing business with you but needs a little persuasion. The other 40% will take care of themselves.


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The facts presented in this blog are based on my best guesses and my substantially faulty geezer memory. The opinions expressed herein are strictly those of the author and are protected by the U.S. Constitution. Probably.

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