Open Up Doors with Client Segmentation
In 1896, Italian economist Vilfredo Pareto, published his first paper entitled “Cours d’économie politique” in which he proved that approximately 80 percent of the land in Italy was owned by 20 percent of the population. He developed this conclusion by observing that 20 percent of the pea pods in his garden contained 80 percent of the peas. Now, well over 100 years later, thanks to Pareto’s observation about his garden peas, the business world still uses the Pareto Principle, more commonly known as the 80/20 Rule.
When applied it to business, it means that 80 percent of revenue comes from 20 percent of customers. I’ve done the math in my own business, and I’ve found it to be true—approximately 80 percent of our revenue is generated by 20 percent of our clients. Those clients then become the top 20 percent of our client base. All customers are important, but the practice of what I call client segmentation ensures you are not neglecting your top clients in the course of a busy workday.
Client segmentation involves identifying the best 20 percent of your clientele and developing a retention plan that ensures they remain loyal clients. Here are some questions you can ask yourself to determine whether client segmentation is right for your business:
- Do I know who my top clients are?
- Does my team know who our best clients are?
- What am I doing for the top 20 percent of our customers?
- Are my people on the phone with them regularly?
- Are we giving them special recognition?
- Do they get preferential treatment when they call?
In a lot of instances in the business world, the most time-intensive clients—and those who create more problems than positive outcomes—are the ones who represent the least amount of business. They are the complainers, the ones who are always behind on payments. That is why client segmentation is so vitally important. You must have a set process in place for how you treat your top clients so that they don’t “slip through the cracks” while you’re busy putting out fires.
The client segmentation process can be complex. The set-up process takes considerable time and effort from a detail-oriented person who is talented enough to understand this mindset and to go through your entire client book. We’ve chosen to segment our clients into three categories:
- AAA clients
- AA clients
- A clients
We have found that 80 percent of our revenue is generated by 20 percent of our clients, and those 20 percent become our AAA clients. We make a concerted effort to pay extra attention to those top customers. This system has liberated us to the point that we now feel empowered to occasionally “fire” a few customers. We don’t
actually kick them out or send them a Dear John letter. We simply stop fighting their battles, and they fade away. Other times, we encourage them to find an insurance relationship that better fits their needs, enabling us to spend more time on people who are more profitable for our business.
Client segmentation makes the process of uncovering opportunities within your existing customer base much more streamlined and achievable. You can work to move A clients and AA clients up to AAA status by cross-selling and continuing to strengthen the relationship. In fact, you can even make a game out of it. Offer your team a crisp $20 dollar bill for every client they move up a level in the segmentation.
If you want your business to continue to grow, take the time to organize your client database in a way that allows you to get the most out of current customers, helps you allocate your time wisely, and enables you to identify which of your clients are the most influential and well connected.
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