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Customer Relationship and 80-20 Rule of Pareto

You must have heard of The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) which states that, for many events, roughly 80% of the effects come from 20% of the causes.

Narrowing this down to the Sales pillar, in Customer relationship, have you ever thought of creating a list of 20% of your customers who are providing 80% of the growth?

Will it be a good idea to identify these 20% of the customers and prioritise your relationship building exercise?

Here are some tangible steps taken by organisations:

  1. First create a roll-up summary of business transacted with all the customers. For eg if you have done three business transactions with a customer, let us say., $10K, $20K, $30K, then the roll-up summary would be $60K in total
  2. Next sort the customers in descending order of the revenue.
  3. Now identify the top 20% of your customers.  So, if your organization has 200 customers then 20% of that will be 40.
  4. Now that you have a list of those golden eggs, create an activity plan to strengthen your relationship with these 20% of the customers.

p.s:  Here in this example, revenue is considered as the criteria. However, you can keep the appropriate criteria relevant to your business model and do the sorting.

Also, keep a lower priority activity list for your remaining 80% of the customers as well.  i.e You should nurture these customers and keep farming them for a future harvest.

Happy CRMing !!

Naga Darshan J
Darshan is a CRM Strategist, Entrepreneur, Author and Business Coach. He heads the sales and marketing for Rapid GPRS and has been instrumental in transformation of several businesses.

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