by Tony Vidler
Everyone has heard of Pareto’s Principle by now, but are you actually using it to improve profit…or improve service….or is it actually “improve service to improve profit using Pareto”?
It is the latter. Undoubtedly.
Improving service leads to greater retention, or longer duration of client engagement & revenue. Improving service leads to greater referral, recommendation and advocacy by clients, leading to lower marketing costs and quicker prospecting turnaround times. Improving service leads to greater wallet share.
These all lead to greater profitability for the practice.
So a quick recap on Pareto’s 80/20 Rule:
The principle is just that; a “principle”. It is not an absolute Law Of Physics or anything. Some years ago we did an exercise in our own practice where we had close to 6,000 retail clients and found that nearly 70% of our revenue was coming from about 25% of the customer base. Pareto’s Principle largely held true. In numeroud engagements with all types of advisers businesses since then over the years the principle has still held largely true.
Even if you’ve never done any serious analysis to prove whether it is absolutely correct in your business or not, you instinctively know it is most likely to be roughly true…
But are you doing anything with this knowledge?
Knowing that means nothing if we don’t do anything with that knowledge.
Many service firms fail to adequately distinguish between those premium customers who provide the bulk of the firms revenue, and the average customer who contributes essentially a meaningless proportion of revenue. All customers deserve a minimum level of
service of course, and that minimum level of service should be set at a relatively high standard when it comes to frequency of contact, providing useful information and tools, and assisting them with problem resolution. After all, many of those “small” clients do grow to become, and replace, some of the 20% of customers who are contributing the bulk of the revenue. They should be nurtured, even if we do so for only the most purely commercial of reasons.
But those who are the top 20% now…are you doing the right things with them to strengthen the loyalty and deepen the relationship?
I am not talking about gifts, events or rewards – although they are all tangible ways of expressing gratitude and recognising the importance or significance of the business relationship, and they may matter to a degree.
But the thing which makes the biggest difference to keeping the Top 20% happy and continuing to be the Top 20% for a long time is something well within the advisers control….but which often gets overlooked due to the “busy-ness” of running a practice. That is simply “giving time and attention”.
The very same thing that goes into managing great relationships with the toughest audience you’ll ever have, and that is teenagers.
Teenagers are challenging for sure, and actually way more challenging than the toughest of clients. Finding the right mix of “give them space”; let them try some things on their own while you are carefully setting and patrolling (and then continually re-setting) boundaries; but being available….it’s a tough thing to get right. What makes it even tougher of course is that even if you have 2 or 3 teenagers you are managing at the same time you find out that each of them requires quite a different mix….dammit. It turns out that these individual creatures are actually quite individual, and each needs a different blend of time and attention.
This is actually the key point here: Improving service to your Top 20% (because hopefully we agree that it is worth your while to do so) requires the same delicate balance that managing multiple teenagers requires. Your Top 20% are all different people and prsonalities, and with different needs and differing levels of competency and knowledge of their own, and different demands. Each is unique in other words.
With teenagers the trick appears to be get the balance of time and attention right at the individual level. Be available, but don’t be intrusive. Be responsive. When they do want to spend time with you, be right there in the moment. Nothing less than 100% attention and understanding works. Let them set the pace and intensity of the interaction and conversation. Don’t judge…they are different people to you, and have different experiences and thoughts, and they are still learning and experimenting…their perspective on any given topic may be a deeply held belief right now, but with time and education and further experiences they will shape those opinions themselves.
Isn’t this how it is with all your top clients too?
Time and attention matters more than just about anything else when it comes to them valuing you and the advice relationship. Don’t underestimate the importance of those simple things – personalised time and attention to your Top 20% – for improving service and profitability levels in your practice.