I’ve got to tell you...often what makes me cringe the most is when I meet a sales professional who, sometimes with great enthusiasm, believes his product or service is so universally needed and important that everyone is a prospect!
Typically you’ll see this among B2C folks...it’s a common trap that newbie insurance agents can fall into (both life as well as P&C). But other consumer-based products or services, such as auto repair (“anyone with a car”), or healthcare like dentistry (“anyone with a set of teeth”) or chiropractors (“anyone with a spine”) are vulnerable as well.
Here’s the truth about that way of thinking: if everyone is a prospect, then no one is.
The fact is, you cannot be everything to everyone. Nor should you want to. Trying to be everything to everyone is a waste of time and energy. And it certainly won’t grow your market share.
There are two primary, complimentary approaches to attacking this issue. The first is to focus on a niche market. We address this pretty directly in Prospect & Flourish, and even have some blog content that addresses it as well.
The second dynamic, that I wish to focus on here, is the 80/20 Rule, a fundamental law of nature that is crucial to your business, and mine as well.
The 80/20 Rule
This rule is also known as The Pareto Principle, named after Italian economist Vilfredo Pareto, who observed and highlighted this idea in the 1890s. He had observed that approximately 80 percent of the land in Italy was owned by 20 percent of the population.
This principle applies everywhere in which human behavior is involved...which certainly applies to business and economics.
Since that time and more recently in the past few decades, many thought leaders in business have observed this dynamic in astonishing detail, including (but not limited to) Joseph Juran, Richard Koch, and Perry Marshall. Generally speaking for our purpose, it starts with the observation that “...80 percent of your business comes from 20 percent of your customers.”
But it goes deeper than this, because 80/20 is fractal in nature. What this means is if you break it down, you will see the same patterns! For example:
- If your company has 1,000 customers and grosses $1 million per year, roughly 80 percent of that revenue ($800k) will come from about 200 of those customers.
- Of those 200 customers, $640k will come from 40 of them.
- Of those 40 customers, eight will yield $512k (or half your annual revenue!).
...and so on. Notice, in the description above, I suggest roughly 80 percent, and the same applies for the other numbers. 80/20 is not about 80/20 per se...the numbers could be 70/30, 60/40, or even 95/5 (or any variation in between).
If this is new to you and you don’t believe it, look at your business stats and do the math. As I indicated, it may not be 80/20 exactly, but the “power curve” will apply.
I can also speak to this dynamic from my days in capital fund raising. Let’s say you wanted to raise $1,000,000 and you have an audience (or donor list) of 1,000 people. The amateur fundraiser would look at this from a perspective of averages. They would pitch their message as “If every one of you donates just $1,000, we will reach our goal!” (Believe me, I’ve seen this approach countless times, as preposterous as it sounds.).
But averaging doesn’t work. It’s not a law of averages; it’s the law of 80/20 that rules in the end. The reality of running a capital campaign was never based on averages (and I managed the marketing for and participated in many over a period of many years to a sum raised that exceeds $250 million). In fact, our campaigns usually didn't go public until at least half of the campaign goal was already pledged, coming from our smaller pool of “major gift” donors (who were identified, targeted and cultivated before an ask was made).
That said, what does 80/20 mean to you and your prospecting and sales efforts?
The key takeaway I want to share here is this single, compelling truth:
The 80/20 principle helps us to understand that together, the processes of prospecting, sales and marketing are far more about screening out people who will never buy—than they are an uphill effort of convincing people to buy something they neither want or need.
Prospecting, sales and marketing are far more about screening out people who will never buy—than they are an uphill effort of convincing people to buy something they neither want or need.
Of course, it should never be about the latter, despite being the tradition of big-dollar mass marketing for decades.
Which begs the question: how do we identify that precious 20 percent who will yield 80 percent of our revenue?
Simply, we craft our marketing and our messaging that gets the attention of that 20 percent, thus triggering them to reveal themselves. Of course, that's just one of the first steps...but a crucial one.
Learning to identify a niche market is another...and we cover all that an more in Prospect & Flourish. Check it out.