Use of the Pareto Principle and Sales Quintile Analysis
By Rick Vohrer, TCV Growth Director -
As a Sales Triathlete you know the need to be constantly training for each leg of the Sales Triathlon; Prospecting, Presenting and Closing. Training includes planning. Each leg is a marathon not a sprint. You must be functional, not necessarily an expert, in all three. And to be successful you must finish.
November is the best month for developing your next year’s sales plan. By now you know, or should have a good idea, how the current year is going to end. If you put it off until December, you will be busy with all the regular year-end business stuff plus holiday parties… who wants to be available for effective planning then? November is traditionally the month of Thanksgiving, a suitable time to reflect. A wonderful time to plan. Where do you start?
The best starting point is with an analysis of your current business. You should expect to experience some level of attrition, say 5 percent. But there may be factors that could balloon that number. I recall one year we had a 5-year contract non-renew coupled with another project that combined had accounted for a third of our prior year’s business. Scary stating out down 33%. Whatever your total gross sales number was for the prior year, there are sure to be clients or projects that will not repeat for whatever reason. That business needs to be replaced simply for you to maintain your past sales level. And of course, you want to grow as well!
Business growth ONLY comes from two sources…
MORE REVENUES PER CUSTOMER
Time is a limited resource. Unless the past year provided lots of time on your hands, and if it did, that is a subject for another post, you will need to create a means for supplying the time necessary to fill the attrition gap and then devote the balance remaining for growth.
I am sure you are familiar with the Pareto Principle, 80% of your business comes form 20% of your customers. Use this universal principle to your advantage by creating a Sales Quintile Report to analyze your existing business. Quintiles simply divide your business into blocks of 20 percent. To create a Sales Quintile Report, divide your gross total sales by five. This is the amount that equals 20 percent of your business. Export your clients into an Excel spreadsheet, then sort them from largest to smallest based on sales volume. Starting with your top accounts, determine how many it took to equal 20 percent. You may be surprised at how few accounts it takes. Determine the next block of 20 percent, then the third, then the fourth. Each block will likely have increasing numbers of customers that make up the total. The last group will likely be 80 percent of your total number of clients or close to it. The fifth-quintile clients are NOT an effective use of your time; may not even be worth answering the phone for.
First-quintile clients are already BIG, so your development time is best reserved for those clients who have the potential to grow in the second, third and fourth quintile. Theoretically, if you were able to simply “dump” the fifth quintile, you would have 80 percent of your time available to service and develop the accounts in the first through fourth quintiles or prospect for additional business. Would you like to have 80% of your time available for more productive endeavors? Developing 3rd and 4th quintile customers into 2nd or 3rd quintile accounts is not difficult when you have the time to devote to doing so. Getting rid of the fifth quintile accounts is the challenge.
It is scary to consider dumping 80% of your customers even if they only make up 20% of your business and would free up 80% of your time. Twenty Percent is not chump change. Some customers are no doubt related to existing top accounts. Others might be so new that you have not had time to develop them into the 4th, 3rd, or 2nd quintile. And of course, there is always the thought in your mind ONE of them just might become a top account. But you still need to free up time.
Identify the ones you must keep; those related to big accounts, those too new to be sure, whatever you believe is erroneously labeled a fifth quintile account. Next, choose a percentage equal or greater to the attrition level you chose. It is likely to be much less than 20%. Include ANY account that causes you to flinch, roll your eyes, grimace or similar when they are on the phone, you receive an email or text. Now, how to get rid of them. Honesty works. Contact them and explain that your business has increased, unfortunately you can no longer give them the attention they require and suggest an alternative. If there is someone in your office that is new, needs additional business, etc., they might be interested in receiving the customers and able to provide them the attention the customers need; everyone wins. Another way is to raise their prices to a level that would get them to the next quintile or contact them and suggest they do business with your #1 competitor. Heresy you say? If they are unproductive for you, they will hurt your competitor. Yes, if will be difficult… the first time you perform this exercise. But after the first time, when you realize the amount of time now available for you to concentrate on growing your business, you will make it part of your annual sales planning. The hard part is always finding the time. If you need help developing a sales plan for next year, please feel free to contact Rick - Rick@TCV-Growth.Partners