You probably already know that the 80/20 Rule of Marketing states that 20% of your customers are responsible for 80% of your revenue.
But it goes much, much further than that. There’s a lot of deeper math involved that can have enormous impacts on your business. My buddy Perry Marshall figured out the math a few years ago, and I’ll be sharing some of his 80/20 “rules of thumb” that I believe every BlingFORCE Client should know.
The first rule of thumb, excerpted from The Ultimate Guide to Local Business Marketing, is as follows:
“One-fifth the people will spend four times the money.”
If you have 100 customers who you make a $30 sale to, 20 of them will spend $120 (4x), 4 of them will spend $480 (16x), and 1 of them will spend $1,500 (50x). The 80/20 rule virtually guarantees this will be true.
How does this apply to your business?
It means you’d better strive to recognize opportunities for larger sales.
If your MO is selling t-shirts at a table or booth at live events, and your main product is a $30 shirt, there are upward opportunities that can make you much more money.
- The math above tells us that 20% of your customers are willing to spend $120 today. What >$100 product do you have to offer them? Is it something over the top, such as a blinged-out, fabulous jean jacket that they MUST have? Or, do you excel at selling people into combining several products and making that $120 purchase?
- The same math tells us that 4% of your customers – 4 out of every 100 that buy from you – are willing to spend about $500. One of them will spend $1,500 with you. And by extrapolation (since it doesn’t end there), some fraction will spend $3,000 or $5,000. Do you have the capability of serving them? If not immediately at your booth, can you ensure that there’s a way that you can help them in other areas, such as the large group they wish to outfit, or their kid’s sports team, or the fundraiser they’re in charge of?
If your vision is narrow and you’re focused on selling each person one shirt, you’re missing the larger picture. Your job is to identify and connect with that one customer who walks up who will pay for your entire event, time and overhead – because you sold her something HUGE. And since you’re seeing the forest through the trees now, you can also take advantage of the 25% of customers willing to spend 4-15x what your normal product costs.
The 80/20 rule is why Starbucks sells $5 cups of coffee, $15 bags of beans, a couple different $200-$300 coffee machines, and a $3,000 professional espresso machine. Although not every 1 in 100 customers buys a machine, they know that once in a while, some guy is gonna walk in and buy 5 of them for his office building.
And in reality, many of our Clients see numbers that are much more favorable. Meaning, that $1,500 sale comes around perhaps 10% of the time, rather than 1% of the time. It has to do with how aggressively you advertise and promote, rather than waiting for customers to inquire on their own.
So if you have a booth, table or storefront, you’d be serving yourself to have a table tent or sign advertising that “We take custom orders!” or “I can outfit your entire group – no project is too large!” or “I specialize in 50+ piece orders!” or “Bulk discounts available on orders $1,000+!”.
A large order should sound like your “norm.”
Make customers think you’re “doing them a favor” by offering them a tiny slice of what you do, even though your “normal” gig is much greater and grander… larger products that you knock out all day long.
And if you’re virtual, your web site visitors ought to easily and instantly see that should they have a need for something larger, you are willing, ready and able to accommodate them.
To summarize: While it’s all perfectly fine and well to focus your attention on selling your core product, always be searching and open to opportunities for larger sales, as the 80/20 rule demonstrates that certain portions of your “normal” customers are actually extraordinary ones.