The 80/20 Rule is easily applied to your sales team and processes.
The 80/20 Rule says sales can improve by as much as 16 times when used properly.
Sixteen times improvement might be a bit ambitious for now but doubling Sales and tripling Profits is quite likely. Blue Belt
Further reading on this topic was discussed in the article: SM2.1 The Amazing 80/20 Rule Tool
Table of Contents
80/20 Principle: Double Sales and Profits Case Study
It is quite extraordinary the impact small changes can have on your profitability. A European study of 1,000 companies showed a 1% increase in price had an amazing average 11% increase in profit!
The 80/20 Rule focuses on just the comparatively few things in your business that have the most impact. Making these small changes has a disportionately big impact on your profitability.
In the case study below, see the impact of just a 20% improvement in your main business levers has on the overall success
Your Current Operating Environment:
- 500,000 people in your buyer population.
- Marketing responders: 1% of the people contacted express interest = 5,000 responders.
- Buyers: 10% of responders purchase = 500 buyers.
- Average purchase = \$50 per buyer.
- Repeat purchase average 4 times a year = $200 per buyer.
- Total purchases for 500 buyers = $100,000 in sales.
Results after increasing each step by 20%:
- 500,000 people in your buyer population.
- Marketing responders: 1.2% success rate = 6000 responders.
- Buyers: 12% of responders purchase = 720 buyers.
- Average purchase (repriced by 20%) = $60.
- Repeat purchase average moves to 4.8 times per year = $288.
- Total purchases for 720 buyers = $207,360 in sales
Sales have More Than Doubled
It is likely that such small incremental improvements will not require a great deal more infrastructure, leading to an even greater increase in profit.
The same sort of multiplier apples when you reduce costs using 80/20 principles.
Above Example now includes costs:
- Cost of stock per \$50 sale = $25.
- Labour and other overheads per \$50 sale = $5.
- Profit per \$50 sale = $20. (price-stock-labour)
- 500 buyers x 4 purchases per buyer at $20 profit each = $40,000 Profit.
Results after the 20% improvement drive:
- Greater quantity purchase discount from the wholesaler means:
Cost per \$50 sale = $22. - Labour efficiency and other overheads improves by 20%:
Labour and other overheads per \$60 sale = $4. - Profit per \$60 sale = $34.
- 720 buyers x 4.8 purchases per buyer at $34 = $117,504 Profit.
Profit almost Tripled (193% gain)
80/20 Sales Boosters
By applying the powerful 80/20 principal to your sales system, you rapidly boost its performance.
Consider these steps;
- Sales Person Performance: The efforts of your sales force are going to have significant impact on your businesses profitability.
- Start with Your Best Sellers: 20% of your best performers probably bring in 80% of your income from sales.
- Model Their Behaviour: seek out why they are so successful and package that into a Training System.
- Staff Training: identify the portion of sales staff that are most likely to improve with training.
- Match Like with Like: match your 20% best sales people with your 20% best clients.
- Focus Sales on Your Best Products: change the emphasis of your entire sales force to focus 20% of their time on the 20% of products that are your most profitable
- Manage Geography: put together a national sales team of your top 20% of sales people and match them up with the top 20% of your clients.
- Tune Your Sales Channels: your sales force may be servicing all clients with equal emphasis and methods. Save costs by focusing efforts on just the best sales channels that bring in 80% of the sales enquiries.
- Reawaken Clients: the fact that a client is not buying a great deal from you does not necessarily mean that they can’t and won’t buy more from you.
See More on These Below
Sales Person Performance
One way or another, the efforts of your sales force are going to have significant impact on your businesses profitability. We can apply the 80/20 principles to the sales force with a view to maximising their potential.
Start with your Best Sellers
Perhaps the first rule is to hang on to your best performing sales people. Very often, they may need more money than average to keep them on board, either in the way of a salary and/or commissions.
However, given that your 20% best performers probably bring in 80% of your income from sales, they are most likely very worth keeping.
If you lose one and replace them with another person, there is a great deal of uncertainty about how well that other person will perform. If you replace them with another high selling, but expensive person, you are essentially standing still. You may as well have kept the first person, whom at least you knew for sure was a performer, rather than take on a new person with uncertainty about how they will perform.
With these great performers, cash is certainly one motivator for many people but it is by no means the only one. People can also be highly motivated by fame, prestige, respect of their peers and other motivators. Don’t rely entirely upon cash rewards when trying to put “golden hand cuffs” on your best-selling people.
When segmenting sales staff, you should be sure that the sales measure you use take into account any returns from clients. Unfortunately, if sometimes happens that a client will do a ‘favour’ for a sales person by taking more product than when really will use and then returning it in the next sales metric period. That way, the salesperson results look better than they are and, if you don’t, check the returns, might continue to do so.
You will also need to allow for different product range and market and clients so it is likely to not be as simple as just selecting the biggest sellers.
Model their Behaviour
Once you have applied the 80/20 principles to identify your best sales people, you need to try to distil what it is that they do well. If you can distil out how they are so successful, and package that up into some training system for your other sales people, you may be able to diffuse some of their success into the rest of your sales force.
Sales technique would only be part of the story however. Personality and their attitude to what they do will also count.
When hiring new staff, you should try to find the characteristics in them that are in your best selling people. You could consider using your best selling people on the interview panels and encourage them to look in your potential hires for what they think will work. Even without realising it, they will probably look for the same characteristics in the new hires as they have themselves.
Once you have a method that works, you need to get all of the sales staff onto the same wavelength.
This may be a make or break time amongst your sales staff. Those that are average, or less than average, and choose to stick to their comfortable routines for selling (which clearly aren’t working) maybe either be let go or placed in an area where their particular approach to sales is not so mission critical.
One of the resistances and excuses you will get from your sales staff is that “things are different here”.
For example, if you have several geographic locations with their own sales teams and one of them is a relatively poor performer, is it the sales team or is it the geographic location that is the main problem?
A way to explore this is to move either a successful individual sales person or a successful sales team into that region for a period of time to see what the factor is. If the successful sales team make a go of it then the problem is the staff. It is unclear how practical this will be in your particular circumstances because it might take any sales team a fair amount of time to develop a rapport with the clients in the new area. So this approach would be completely contingent on the realities of your particular business.
Staff Training
To what extent is it worth investing in the training of your sales staff?
Even though you might spend a considerable amount of money on training, if they don’t take to the training or if their personalities are such that they won’t be one of your superior sales people, then it may be a waste of time.
Training 100% of your sales staff is almost certainly a waste of time and money. Best to identify the portion of the sales staff that are most likely to improve when they have training.
We assume that you will invest in the training of your top 20% to whatever extent seems worthwhile because anything covered with this group of your “best” candidates here is likely to have the best pay off.
Perhaps the next group that you should train is the 20% best out of the remaining original 80%. We know that the 80/20 rule is “fractal” which means that you can keep taking 20% of that remaining 80%, and so on and the rule continues to work. Therefore, investing in this second 20% group means that you are taking those with the next best potential to improve and investing in them..
Match Like with Like
Even if your sales team has not been segmented on the 80/20 principle, or you are in the process of doing it, you can make some quick improvements to the way your system works using the 80/20 principle.
You have various devices available to you to focus your sales force on the 80/20 clients that we have discussed elsewhere.
Further reading on this topic in the article: SM2.1 The Amazing 80/20 Rule Tool scroll to Customer Relations.
Rather than randomly assign sales staff to customers, make sure to match your 20% best sales people with your 20% best clients so that the clients are as well serviced as possible. If the best 20% of sales people services the best 20% of clients, you are likely to get something in the order of a 4 to 16 times improvement in your sales according to 80/20 theory
Focus Sales on your Best Products
Secondly, you could change the emphasis of your entire sales force to focus on the 20% of products that are your most profitable to sell so that they first spend their time on selling those products and the remainder of their time on selling less valuable products.
Giving clear directions to staff on what to sell, rather than relying upon them to make that mental jump themselves, will be necessary until they undo their old habits and get used to the 80/20 way.
Manage Geography
If your best clients are distributed over a large geographical area and are presently serviced by separate sales teams, those sales teams may or may not contain your best sales people.
It, therefore, may make sense to put together a national sales team of your top 20% of sales people and match them up with the top 20% of your clients no matter where they are geographically located. It may well mean much more travel associated costs but the marriage of 20% and 20% we already know will contribute somewhere between a 4 and 16 times improvement in sales. It’s also often not necessary to meet face to face each and every time. More and more work can be done virtually with the tools available today.
Tune your Sales Channels
Your sales force may be servicing all clients with equal emphasis and methods.
You can direct them to use different sales channels (face-to-face, online, telephone, email for example) or different ratios of face-to-face meetings to phone meetings according to the value of the client.
Sure you may lose some clients if you service them less face-to-face, but if they are small clients requiring a high cost of face-to-face servicing, the company may be better off without those clients.
We don’t encourage losing any clients because it’s many times easier to grow an existing client than it is to find a new client. However, if the client resists being “grown” we should lower our cost of servicing to the minimum to maintain that client so as to maximise what we can from their profitability.
Reawaken Clients
Over time, your sales people and your clients will get into a relationship groove and neither party will think of breaking out of it. The same products in the same volumes and prices will be sold each purchase time.
The fact that a client is not buying a great deal from you does not necessarily mean that they can’t and won’t buy more from you. It may simply mean that you are not approaching them actively enough.
Sometimes, a brainstorming about how to restart some of these stagnant clients may show other avenues and opportunities that can be taken advantage of. Sometimes, changing the sales person may lead to new marketing insights on how to grow that client.
Some types of business will have many past buyers. Sometimes these are never followed up and never given the opportunity to grow their consumption with your business because they are not reminded to do so.
Today, it is very simple to have various automated email tools that send out regular reminders to customers to try to re-stimulate their interest in your business. This large mass is the 80% of dormant clients you have compared to your 20% of active clients. Our goal is to reactivate 20% of those dormant clients to join your active client pool..
Drill Down for More
To learn more about the 80/20 Rule in specific situations, click on any of the following links.
For more on Prioritisation in general visit this link
This article was provided by Scott Williams AO FAIDC. It describes the way best practice in many management areas has been brought together in the 12Faces GamePlan System. The Goal is to provide an easy to use and repeatable “flywheel” to improve small business owners’ outcomes. Scott is the Founder of NFP small business support services 12Faces and MentorSME and has a Philanthropic Foundation supporting students in education. Scott’s business Petals Network was National Small Business of the Year and 4 times in the Top 100 Fastest Growing Australian Businesses LinkedIn