Part one: The 80/20 principle
Some products and services are more profitable than others. The same goes for customers. This guide will help you to identify these customers and encourage them to buy more of your profitable products and services.
The 80/20 rule
Pareto’s Law or the 80/20 rule – applies to almost every area of life and work. It provides a guide to understanding which are the most important elements of your business and how to improve your business profitability.
If you add up the annual business from the top 20% of your customers you will probably find that they account for around 80% of your income. Therefore, your business profitability depends on being able to satisfy that 20% of your customer base.
You can’t ignore the rest, but nor should you try to put equal emphasis on the demands of the other 80%.
The 80/20 rule will also help you identify the right kinds of prospect. For example, analysing the top 20% of your customers should enable you to determine the type of business or customer you need to target to win the best quality new clients.
Using a contact database to boost sales
You cannot analyse your customers unless you keep a detailed profile of them in some sort of database. Follow these tips to help you get more sales from your contacts.
Compiling a database
To be able to use information, you need to be able to retrieve it easily and reliably. The easiest method to record and access such information is to use a computer database.
Keeping records on a computer database has major advantages over a traditional method such as a card index:
Basic information for databases
Basic facts to include in your database – on all your current, past and dormant customers and prospects – include:
Remember, if you are going to use telephone/fax numbers or email addresses for direct marketing, it’s important to check with your prospect that they are happy for you to do this. You must also make it clear, with every communication, how they can unsubscribe from your mailing list.
Personal details
Other information about the contact is useful to develop a more personal relationship and provide reasons to make contact. Items might include:
Contact record
Corporate details
Factors that affect the whole business, not just an individual or department:
Off-the-shelf databases
Many computer software packages have simple templates for a contact address book. There are also some more powerful and robust contact management systems available that you can use. These offer flexible contact recording, integrated word processing, plus automated reports to highlight actions due. Some also incorporate automatic letter generators and analysis routines.
Keeping records and the law
There are conditions attached to keeping data on people. The Data Protection Act 1998 gives rights to individuals – such as access to any information held about them. It also ensures that people who process data follow proper practices and are open about how they use the information. The Act covers data on computers and data held in organised paper or card files.
The Act is concerned about data on individuals not organisations. The information need not be particularly sensitive – just a name and address. Those who hold such data may be required to notify the Information Commissioner.
There is no minimum number of records or size of business the law applies to. However, regardless of the size of your business, notification currently costs £35 (VAT nil) for a year.
You are unlikely to need to notify the Information Commissioner if you use the data for your core business purposes only, including staff administration, accounts, advertising, marketing and PR. Whether or not you are specifically required to notify, you will have to abide by the principles of the Act. It is simple to check if you need to notify the Information Commissioner just telephone the helpline.
To be allowed to hold information on individuals, you must show it is for one of the following reasons:
There are other obligations:
These notes are intended as a guide only. If you need advice on data protection issues you should contact your solicitor or the Information Commissioner. A breach of the principles of the Act is a civil matter but under the law there are also various criminal offences, subject to stiff fines, for instance if you fail to observe a notice served on your business for a breach of the Act, or if you fail to notify the Information Commissioner of data where you are required to do so.
Telemarketing
Since December 2003, companies have had an enforceable right to stop you making telemarketing calls to them. It is now illegal to use telemarketing to companies that have registered with the corporate telephone preference service or fax preference service.
Privacy and Electronic Communications Regulations 2003
If you intend to use email to market your products, you need to be aware of these new regulations.
The first rule applies to all marketing messages sent by electronic mail regardless of the recipient:
The second rule applies only to unsolicited marketing messages by electronic mail to individual subscribers.
There are exemptions to this, for example if the recipient’s email address was collected in the cause of a sale or if the recipient has already expressed an interest in similar items and also chose not to opt out when the address was originally collected.
The regulations of e-commerce also require you to make all commercial email clearly identifiable.
Identify your most profitable lines
The 80/20 rule also applies to your products and services. A useful analysis would be to look at actual profit contribution per product or service line rather than just sales volume – the best-selling line could in fact only be breaking even.
Assessing profit margins means allocating overhead costs like storage, transport or indirect labour. Some of these costs may be arbitrary, but doing this will enable you to take a closer look at the profitability of your products, services or activities, and ranking them could throw up a few surprises and focus your mind on the real winners.
The right product mix
Less profitable lines are not unimportant but you could decide to spend less time, money and energy pushing these – especially if you find it hard to increase your margins.
On the other hand, it may be necessary to keep providing unprofitable lines because customers come to you for a total service, a complete range, or an all-in-one solution.
Whatever your decision, 80/20 analysis will help ensure that you are making a choice based on an understanding of the contribution to profitability of each product or service.
Useful contacts:
The Information Commissioner can send you, free of charge, information about notification and the 1998 Data Protection Act in general. Its website also offers guidance on how to adhere to the various Data Protection laws and regulations.
Helpline: 01625 545745
W: www.informationcommissioner.gov.uk
Telephone Preference Service
T: 020 7291 3320
W: www.tpsonline.org.uk
Fax Preference Service
T: 020 7291 3330
W: www.fpsonline.org.uk
It is good business practice to avoid contacting those people who do not wish to receive direct sales mailings. The Mailing Preference Service is a central register of individuals who have indicated they do not wish to receive unsolicited direct mail.
Mailing Preference Service
T: 020 7291 3310
W: www.mpsonline.org.uk
