“80% of your future profits will come from just 20% of your existing customers”
What’s the background?
This is a well-known CSAT stat which is often cited in discussions about customer retention.
It is known as the 80/20 rule, or the ‘Pareto principle’. It’s a wide-ranging precept that states that, in many situations, approximately 80% of results will come from just 20% of the causes.
It was established by Joseph M. Juran in the 1940s after he encountered the work of an Italian economist, Vilfredo Pareto, whose initial observation related to land ownership in Italy. Juran developed the principle further, naming it after Pareto.
Over time, as further studies have been conducted, the rule has been recognized in many scenarios, including business management.
The vast majority of your future revenue will come from a disproportionately small number of your existing customers.
It’s important to remember that the 80/20 rule is not a scientific certainty, it is a guideline. When applying it to revenue, the precise percentages will vary from one business to another. However, the critical point that the rule highlights, is that the vast majority of your future revenue will come from a disproportionately small number of your existing customers.
In terms of future revenue, the 80/20 rule is a sobering reminder that customer retention is vital.
The most important thing you can do to avoid your customers leaving, is communicate with them. If you don’t know who your customers are, and what they need, then you’re immediately at a disadvantage.
The rest of this post examines the other things you should be doing…
Collect as much information as possible. Who are they? Where are they? Why have they come to you? What are their needs? What are their priorities? Are they happy?
Don’t simply bombard them with all these questions though!
Keep your communications light, but genuine. A brief, thoughtfully worded email simply asking them how they’re getting on, or what they think of your product/service, will gain far more responses than a lengthy barrage of questions.
Actually talk to your customers
Email communication is incredible valuable for getting to know your customers. But don’t just rely on this. If it’s possible, actually talk to your customers too.
Whether you’re a CEO, a Director, Head of Customer Experience – make yourself visible. Be open to having real conversations with your customers. You’ll be amazed at what you can learn in the course of a quick chat.
Get everyone on board
Make sure your employees know the importance of collecting feedback and reporting it back.
The small nuggets of information picked up in the course of regular customer interactions can be really valuable. It might just be a passing comment, or a throwaway remark – train your employees to listen carefully to your customers and feed back any useful information.
It’s also important that your staff know that complaints are not something to be afraid of.
Often, complaints help us learn about our customers more effectively than anything else.
No one likes receiving complaints, but complaints should be welcomed – because you can’t make things better for your customers if you don’t know what’s wrong!
Analyze and act
Communicating with your customers and learning about them is just the first step. It’s vital that this information is actually analyzed and acted on. If it’s simply a tick-box exercise where the information sits gathering dust, it won’t help at all.
Think about how you can improve any weaknesses that are highlighted…and how you can build on your strengths as a business. Use the knowledge you gain to make changes as necessary, and hold onto those valuable customers!
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