I’ve been doing quite a lot of sales pitches recently, and there are always some clients who think that you cost too much or that they would rather do it themselves, especially once you show them technically how to do things.
As my business coach Blaise Brosnan says, knowing “what to do” is far more important than knowing “how to do things”.
Be Seen To Add Value Not Costs
I’ve been struggling with how to deal with these types of clients as I thought it was a problem with the way I was pitching, but Blaise summed it up for us a few weeks ago: “find clients who put a value on what you do, rather than see you as a cost”
Blaise also advised us to think about whether a client is likely to become one of the 20% that will account for 80% of our revenue, or one of the 80% that will account for 20% of your revenue.
Are there some potential clients who show early on that they will be the horse that you can lead to water but won’t drink? Will you be spending more time on them that could be better spent with a client who is a pleasure to deal with?
The 80/20 rule works the other way too. 20% of your clients will take up 80% of your time, and it’s up to us to make sure that it’s the same 20% that is giving us 80% of the revenue.
The 50/5 Rule
Something extraordinary about the 80/20 rule is that if you applied it again then about 5% of your clients will account for about 50% of your revenue.
Here’s the logic:
- If a company has an income of 100k from 100 clients, then their top 20 clients likely accounts for 80k of that income.
- Applying 80/20 again would imply that the top 20% of those top 20 clients will account for 80% of that 80k turnover.
- i.e. their top 4 clients accounts for 64k of their turnover.
- Round that down a bit and we could say that the top 5% of their clients likely accounts for 50% of their revenue… and we end up with the “50/5 rule”.
I’ve seen this hold true for a number of clients of my own. A few years ago a franchise in the U.S. sent me 5 years of their sales transactions for their 70 franchisees stores. I worked out that the top 4% of their clients accounted for 41% of their sales.
So our fictional company with 100 clients could try and increase their income by 100% by finding another 100 clients. Alternatively they could identify the common characteristics of the clients that make up their “50/5″ segment and find 10 more of those clients. This will increase their income by 100% as well, but they”ve now got 110 clients to manage and not 200, and they only had to get 10 new clients and not 100.
Your own top 5% of customers could be called your “hyper-responsive” customers. Once they find you they buy everything off your shelf. The reason they are hyper-responsive is that they know the market the best, and realise when they find you that you’re exactly what they need. You have all the necessary market entry points, but you have the special points of difference that they have been searching for for ages, and have now found.
Sometimes Its Good To Say No
So don’t feel guilty about saying no and pushing back. Sometimes a client will just drain you of your time, energy, and motivation and you’d be better off ditching them and spending more time on your top 5% of clients.
Warren Buffet is reputed to have said that his company never takes over a company where he personally doesn’t get on with the everyone on the board. He’s going to have to spend a good portion of his life with them, so he might as well make it something he enjoys.