The Pareto Principle, or 80/20 rule, is a long-held rule of thumb in business that is based on the relatively small portion of a customer base that drives most of the profits from sales prospecting. Typically, a company generates about 80 percent of its profits from around 20 percent of its customers.
The correlation between the Pareto Principle and sales prospecting may not be immediately clear. However, it points to the importance of identifying and attracting high-quality leads to your business.
Loyal Customers are Key
It is your small base of loyal customers that have the most interest in your solutions. Over time, as you build trust with this core base, they spend more money and refer others to your business. It is efficient to build long-term relationships with these buyers because your investment in retention is a fraction of what it costs to attract new customers.
Retention costs for companies usually run around five to seven times less than acquisition costs for new customers. Plus, the likelihood of selling a solution to an existing customer is 60 to 70 percent compared to just 5 to 20 percent depending on the industry for new customers.
Achieve Efficiency Through Marketing Automation
Historically, many niche providers have failed to target customers with effective and efficient communication. Too often, businesses invest in campaigns to general audiences that have low response rates. Aligning marketing automation with CRM allows you to address these communication issues.
A recent report from Software Advice indicated that email marketing (at 32 percent) is one of the most sought-after features in a CRM solution. Companies want the ability to develop communication programs that are well-planned and well-designed but executed in an automated manner.
You can segment campaigns that target micro-segments even within a niche audience. Promote particular products and services to people based on profile characteristics or demonstrated buyer behaviors. Precise email communication enhances interest and attention in messages, as well as increasing response rates to them.
Improve Gross and Operating Margins
With a fully-integrated CRM program that touches all functions in your business, you can achieve greater gross and operating margins. Avoid wasted planning and contact time in your lead management by investing only in your most profitable market segments. Leverage the value of loyal customers that buy more over time as the relationship grows.
Your operating margins improve also as you fine-tune leads management processes and methodologies and minimize manual activities that cause delays.
Conclusion
As you can see, the correlation between the Pareto Principle and sales prospecting is strong. The most profitable companies market in ways that attract ideal customers into the business and dissuade unprofitable customers from becoming a drain on resources.
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