The 80/20 rule is a powerful framework, one that helps us understand the dynamics between inputs and outputs. The rule asserts, that a minority of causes and inputs of effort, results for the majority of the output. When the rule is applied to a customer base, a skewed imbalance is often seen, where a small minority of customers contribute towards a majority of top line revenue. Many business owners overlook this fact and do not spend enough time and effort in ensuring to give exceptional service to their top 20% of customers. I was reading an article on techcrunch a few days ago regarding how Amazon is planning on giving free Kindles to its Prime customers. Prime customers are Amazon’s most frequent customers, they are the ones who apply for yearly memberships to get free shipping on the goods they buy.
This news clearly demonstrates how Amazon is focusing on ensuring that Prime customers get access to the very best products that they have to offer. By providing these customers a Kindle, not only will they be able to increase the amount these customers buy from Amazon, it was also boost loyalty, given that Kindles are not very cheap. The investment in this however should be recouped relatively quickly, and it would further help avoid defection to Apple’s upcoming iPad which poses a serious threat to Amazon’s Kindle.
This example goes to show how a company can successfully create a higher level of service for it’s best customers and focus more effort on them. For most smaller businesses, a similar analysis to customer base can be applied to determine which ones are actually contributing the most to the bottom line. These customers are essentially cash in the bank, and if any of them defects, short term losses will need to be faced, the longer term impact will be far greater. If you have not taken stock of your top 20% customers, I strongly suggest you do so as soon as possible. Next, find ways to provide them with exceptional service and be in constant touch with them. They are the life blood of your business, and should be treated as such!