August 04, 2022

A Version of the 80/20 Rule

Here's the share of next year's sales from existing customers (y) as a function of customer file quality (0.1 = great customers, 1.0 = worst customers).




4% of the customer file delivers 29% of next year's housefile sales.

20% of the customer file delivers 65% of next year's housefile sales.

50% of the customer file delivers 88% of next year's housefile sales.

This client needs to take the top 4% of the housefile and do SOMETHING to reward them. Not points. Not a loyalty program. Something meaningful.

I mean, the relationship above is for sales. When I plot profit? Woo-wee!

Having great customers helps your customer acquisition efforts. Great customers generate so much profit that their profit rolls into your long-term value calculations - and long-term value dictates how much you can spend to acquire a customer.

It's all circular, and it's all important.

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