How does one man eat an entire elephant?
One bite at a time….
The same applies to approaching your market. For purposes of this article, we’ll assume you aren’t a start-up. You’ve already got a decent base of customers who purchase from you regularly. You’ve already got a sales or marketing team (even if it’s just one person (or just you)) and a little bit of a budget.
I was recently working with a medical services provider who was hoping to increase their referral rates fairly dramatically and in a fairly short period of time. They’d done some grass-roots marketing, but their customer base was pretty diverse – Hospitals, EMS & Fire Departments, and a host of other possible referral sources. After taking a look at their basic metrics, one theme stood out among the rest like an old familiar friend.
If you’re out of the “startup” phase, your customers will segment themselves.
If you’ve got a least a few months of sales data, import it into your friendly local excel document. Make one column with the name of the company and a second with the volume sold to date- doesn’t really matter what this number is, could be widgets, gallons, patients, etc. – as long as it’s a number (an accurate one hopefully).
Sort the second column.
Ta-da! Your customer base segmented itself right before your eyes. There will likely be a few customers who make up 30-50% of your overall sales, another set of three to five customers who make up the next 30-40%, and finally a larger number of customers who make up the rest – usually 10% or so. If you’d like to dive deep into that, just total up your sales on the right and divide Column B by the total:
Then change formats to percentage – just to keep it easily digestible:
You’ll be tempted to try to grow top accounts. Don’t.
Now it’s time to turn these figures into an action plan. Let’s graph this out to make it a little easier to chew on:
We know from the hard numbers listed in our table that ADS Enterprises and Excellence Inc together comprise 50% of our overall sales. Just looking at the figures, you’d be tempted to grow your top accounts. Don’t. The numbers are attractive – after all, these are your top clients. If you could just get them to purchase ‘x’ number of units per month, you could easily cause a bump in sales. This is very dangerous – albeit common throughout most companies. What would happen if Excellence suddenly declared bankruptcy, had a leadership change, or switched their methods so that they no longer needed your product or service? You’d loose 22% from your top line sales, and likely much more on the bottom line.
Enter the “ACE” Method –
Let’s segment customers up a bit. I advocate the ACE method of Market Segmentation, that is, classifying accounts based upon where they lie in your current book of business.
- A: “All-stars” – Top 20% of performers – in this case, ADS Enterprises and Excellence Inc. These guys and gals are your best customers. They’ve likely been with you for a long time. Your sales staff knows them inside and out, and if they have a problem – you solve it with haste. They’re great – and you should allow them to continue to be great.
- C: “Core” – The next 50% of performers. In this case, everyone from St. Mary’s Hospital to International Supply. These accounts are likely to be decent mix of new and old customers. Some buy when and what they can, others mix and match suppliers without your knowledge. Your sales team visits them regularly, but probably not as often as their friends up at ADS and Excellence. This is where you’ll make the biggest gains in your company.
- E: “Exploratory” – these accounts are likely to me intermittant purchasers. If you’re a services company, they may be using other providers – calling only on you when necessary. If you’re selling them products, it’s possible that they’re too small to need more of your products – or maybe they’re in a cash crunch. Both of these problems can wait. For now. Treat them as “Exploratory” – have your sales staff visit them routinely, but don’t let them distracted from the big targets – your “Core”.
Sales teams should dedicate 60% of their of their time to the “Core”.
So now that we’ve got some incredible information – let’s formulate a sales & marketing plan to go along with it. In an ideal world, your sales team should spend time this way:
- A (“All-stars”) – 30% of their time
- C (“Core”) – 60% of their time
- E (“Exploratory”) – 10% of their time
Using this 30/60/10 approach, on a standard 40 hour week 12 hours (or a day and a half) should be spent with “All-Star” customers, 24 hours (3 days) with “Core” customers, and only 4 hours (or an afternoon) with exploratory customers.