That's a bold statement, isn't it? An exaggeration for effect, sure.
But I bet, like me, you've sometimes wondered whether clients really are all that loyal.
Well, now there's hard data to back up our gut feeling. The results don't make for pleasant reading. But they do tell us what really works if you want to grow sales (especially in business-to-business).
But more of that in a second. Let's back up to set the context so this all makes sense.
Last week I headed over to Washington to attend the CEB‘s 2017 Sales & Marketing Thought Leader Roundtable. A rather eclectic bunch of sales and marketing experts sat round as the team from the CEB (I should technically say the CEB, now Gartner) presented the findings from their latest sales and marketing research and we discussed, debated and gave them feedback.
They've done two big studies so far this year. One in sales which I'm going to discuss in this article, and one in marketing (digital marketing through the business-to-business buying cycle) which I'll discuss in an upcoming article.
Now it's worth noting before we jump in that this research is focused on business-to-business – ie marketing and selling your products or services to other businesses. And the research was primarily done with large organisations, both from a buyer and seller perspective.
But what you'll find is that the results are equally applicable whether you work for a big company or run your own little solo business like me.
The CEB research covered many areas. but the findings that jumped out for me, in many ways because they go against so much of what is being preached today, were about the best ways to grow business with your best and biggest clients.
Who are your best customers? It's a question I often ask my clients. And the answers I most often get are either “the big ones” or “the small ones”.
In fact, because I have a ton of experience in selling to large companies, I'm often asked for my advice on how to “land a whale” or to break-in to big companies.
But in my experience, the best, most profitable customers for most businesses are the medium-sized ones. It's certainly the case for me. And when it comes to prioritising business development – that's where I put my energy.
I love small customers and working with SMEs. They have a flexibility and a freedom that makes a real refreshing change from working with big corporates. The trouble is that the revenues from these businesses often don't justify the fixed “overhead” costs of doing business with them. In the work I do, I invest a lot of time really getting to understand my client's businesses, diagnosing what we will need to do to grow their sales, and understanding the best way of implementing my recommendations so that they will really stick.
That up-front investment is pretty much the same for small or large businesses – but with small businesses the revenues I may get from that investment are usually lower. And because my fees are pretty much at the top-end of the market, smaller businesses often struggle to afford me. So sadly, I have to restrict my work with small businesses to a few a year, where I am really going to learn something and grow myself as a result.
Conversely, although the profits I might earn from large companies are theoretically much higher, I find this to rarely be the case.
Nowadays, large companies have “professionalised” their purchasing processes – and in my experience this often means that they have bureaucratised them. The selection processes for suppliers are long, complex and costly – effectively ruling out many smaller businesses and handing a huge advantage to bigger suppliers more used to dealing with these processes and having pre-prepared stock answers to the typical questions asked.
In an effort to have a “fair” process, suppliers are prohibited from speaking to potential business customers during the selection process and are funnelled through the procurement professionals. This hands a huge advantage to incumbent suppliers who know the company well and know how to frame their solutions and responses to resonate with the company's needs and culture. For new suppliers, cut off from rich interactions with the people who are really going to be impacted by or using their products, they have to rely solely on what has been written in black and white on the request for proposal.
As anyone who has been involved in sales knows, it's frequently the case that the true customer requirements only really emerge from in-depth interactions with expert sellers. So by cutting off those interactions, the process effectively becomes a guessing game where the winner is the supplier that is able to most accurately second guess what the customer is really looking for, rather than the one who is best able to deliver it for them.
And of course, the procurement departments in large companies are frequently charged with ensuring “value for money” by squeezing out every last drop of discounts from their suppliers. It's only the very best procurement professionals who are able to get more value by working with the supplier to ensure greater benefits. The majority simply work at reducing the supplier's price.
Now this is not meant as a tirade against large companies and their procurement practices. There are very good reasons for them having adopted those methods. But what it does mean is that for most suppliers, large companies are usually not their best customers.
In my experience, both personally and for my clients; medium-sized companies are frequently the best customers.
They are large enough to place decent sized orders or engage service providers for large projects. They are still small and flexible enough that the seller can engage with the key decision-makers to properly shape up a solution and demonstrate their capabilities rather than working through intermediaries.
And medium-sized companies often have an ambition level that outstrips the large companies. They're not focused on protecting what they've got – they're focused on growth and are willing to take on new ideas to do so. As an additional bonus for service providers, medium-sized companies rarely have their own internal organisations which duplicate what external providers do – so they are more willing to take on outside help.
Of course, this picture is not universally true. Some small companies buy big from certain suppliers. Some large companies are nimble and focused on value rather than just cost. And some medium-sized companies suffer the worst of both worlds.
But more often than not, when you do the analysis and work out the profitability of each of your customers – taking into account all the costs of doing business with them – medium sized businesses come out on top.
The implication? Don't be afraid to focus your prospecting and business development activities on medium-sized companies rather than chasing the big company “whales”.
It's probably the best-known and most-repeated rule in sales: 80% of your sales come from 20% of your customers. The implication is that you should focus the majority of your sales efforts on those 20% to maximise your returns.
But it's also the most misunderstood and misused rule in sales. Slavishly following the 80:20 rule could cause you big, big problems.
The first question to ask about the 80:20 rule is “is it true?”.
Well, the answer is “usually”. There are many professions where sales do follow some sort of 80:20 or 60:15 or other uneven split. But there are also professions where it doesn't – where the spread of sales is pretty even across customers. So it's absolutely crucial that you know the numbers in your business and don't end up putting all your eggs in the wrong basket.
The second, more important question is: “OK, there is an 80:20 split in my business – but does it persist over time?”. In other words – are the 20% of customers who make up 80% of your business going to be the same today as next year?
In this case, the answer is very often “no”. And this can be a huge trap for business developers who focus their efforts too heavily on today's big customers. In very many situations today's big customers may not be tomorrow's.
Takeovers, changes of management or changes of strategy often result in big changes in the amount of products and services being bought – and in who they are bought from. And in many industries there is a natural cycle of peaks and troughs in purchases.
For management consultants, for example, there is often a natural cycle of entry into a client firm, followed by an expansion period where you build relationships with more client executives and sell more work. However, there is also a natural decline as the issues you were brought in to deal with are addressed, and the clients begin to take over much of the work and the capabilities to do it themselves.
The key message is to be aware of fluctuations in the 80:20 rule. Look at your historical sales and analyse whether the composition of the 20% of customers who make up 80% of sales varies significantly year on year.
And if it does, you need to watch carefully and invest time and effort in nurturing new customers to rise up into the top 20% rather than spending all your effort on the current 20%. Focus on sales potential to drive your efforts rather than just historical sales.
The final question to ask is: “Even if I know my top 20% – does that mean I should devote most of my attention to them?”
The answer here is “usually yes – but not always”. It's common sense to focus on your highest potential customers. But there are sometimes diminishing returns to any extra efforts if you are already devoting a lot of time to a customer. Sometimes spending more time with an “underserved” client can produce a much greater impact on sales than holding yet another meeting with your favourite client.
In all three cases the key is to look beyond the simplistic 80:20 rule to check:
Does it really apply in my business?
Does it persist over time – or do I actually need to focus on “rising stars”?
Will extra effort on my top 20% really increase sales – or are they already being fully served?
Now don't get me wrong – the 80:20 rule can be very helpful as a simple guide to where to focus your effort. But thinking beyond the simple rule will pay big dividends for sales people willing to invest their brain power and challenge the accepted norms.