Are You Nurturing the Right 2%?
CEOs, VPs of Sales and VPs of Marketing strive to better serve the top prospects and customers that fall directly into the company’s sweet spot in order to maximize revenue and profit. Having a clear understanding of who those top prospects and customers are allows a company to refine its sales strategy, value messaging, market segmentation and allocation of resources.
When senior leaders are asked “Who are your top 2% of customers?” typical answers include:
“We’ve been in business for a decade and have 130 customers. Of course I know who my best accounts are. I have my best reps assigned to them…but my profits have been flat.”
“Company X has got to be among our best customers. We do 15% of our yearly revenue with that customer alone….but my CFO isn’t so sure about their additional requests and what they keep costing us.”
“Of course not all customers are equal. Our best ones buy a large volume of material, year after year. And they mostly pay good prices … but they aren’t increasing their volume, just staying even.”
Although each of these senior managers firmly believes what they are saying, the assessments are frequently based on anecdotal information or derived from one or two-dimensional data. What if we could ask the company’s own sales data if it agreed with the senior leader? Would that data tell a different story? Not surprisingly, when more advanced data mining and analysis is performed, the answer is often different than the previous presumption of a company’s “best customers.”
The 80/20 Pareto distribution is a familiar and frequently used method to quickly carve out top tier customers. But in today’s competitive world, there is often one additional metric that companies need to watch: your 2%. This 2% reflects the two percent of a company’s sales database that make up its absolute best customers. And they may not be who you think.
Below is a simple example of customer data to illustrate the point. Let’s say a company is interested in volume and margin, and so you make a two-dimensional graph in which each blue dot represents a customer.
The company might define its “best” customers as those that purchase a large volume of items – as represented by the two customers circled on the far right below. In this example we also see that these customers happen to generate low margins (in this case, below 0%!):
Or, the company might define its “best” customers as those that deliver the highest margins – as represented by the two customers circled at the top of the graph below. In this view we can see that those customers happen to have low corresponding volumes:
This is where more advanced data mining and analysis methodology and technology can help you. Once you define the dimensions that matter most, your data can then be analyzed to identify the intersection of both criteria, as highlighted in green below. As you can see, using even a two-dimensional volume/margin combination paints a very different picture from the single-dimensional examples above.
In today’s data-driven environment, companies cannot be competitive by guessing who their “best” customers are. It is also not enough to define a company’s best customers along only one or two dimensions. To be competitive, companies must use more advanced data mining and analysis methodology and technology to define their “best” customers across multiple dimensions. This gives a clearer and more objective view of their true market.
The simple example above illustrates how two dimensions – volume and margins – can be used to identify a company’s “best 2%.” In the real world, this type of analysis is more complex and often takes into consideration 3, 5, 7 or more variables that are gleaned from multiple systems or other data sources and typically include a combination of: sales volume, revenue, margins, purchase frequency, transaction history, seasonality, discount tier or any other critical variable.
Once data mining and analysis reveals the true answer, the next step is to take a closer look at your sales strategy to ensure your sales approach is properly aligned to nurture, grow and find more of those top customers.
So who are your top 2% of customers? Is your sale strategy properly aligned to achieve optimum impact? Don’t just guess. Ask your data. It will reveal the true answer … and that answer may surprise you.
For more information on using data mining to further refine and sharpen your sales strategy contact Compendium Advisors at firstname.lastname@example.org OR Carrie Beam Consulting at email@example.com
ABOUT THE AUTHORS
Dave Dotzler – President, Compendium Advisors
Dave is a consultant, coach and speaker on the topic of sales and revenue acceleration. With over three decades of experience, Dave has build, led and enabled sales organizations responsible for delivering over $2.2 Billion for industry leading companies. He holds a Masters Degree in Business and serves on the Board Of Directors of the Tri-Valley Consultants Forum. Dave works with high-growth companies to help them overcome sales pain and achieve sales gain to accelerate sales and revenue success. See more at: http://compendiumadvisors.com/
Carrie Beam, Ph.D. – Principal, Carrie Beam Consulting
Carrie is a consultant and university professor with expertise in data mining, analysis and decision support. She specializes in helping customers uncover the story in their data, with a focus on sales and marketing. She holds a Ph.D. in Operations Research and serves on the committee for the Franz Edelman Award, which recognizes excellence in business analytics. See more at: http://www.carriebeamconsulting.com/