by Lynn Thomas
The latest research reveals that the top 20% of your Clients generate 160% of your profits. On the other hand, the bottom 20% of your Clients can drain up to 80% of your profits.
This finding surprises most people. Long-term profitability is mostly achieved by focusing on your most profitable Clients or the top 20% of your Clients who generate 80% of your business’ revenue. You want them to generate up to 160% of your profits.
To do so, you need to gather Client intelligence from these top Clients such as why did they initially decide to place their business with your company, why have they stayed, are they willing to refer and cross-buy? These are a few examples of Client intelligence that can drive your sales to consistently yield higher profits.
Most companies make decisions based on anecdotal stories and gut hunches. But the marketplace and especially the insurance business have changed. The new rules to generate a consistent profit include using reliable and valid Client intelligence to successfully implement the subjective anecdotal stories and gut hunches.
Your top 20% of Clients today will be the sources of your company’s future growth over the next five years. In fact 80% of your company’s future growth will come from them. They are priceless and in order to replicate and duplicate them, you need to understand how they make decisions. How did they learn about your company? How did they become a top Client with your company and four other questions you must ask to generate the revenue growth? These are not responses that you can afford to guess at. So are you willing to change your mindset and have 50% of your top Clients generate over 220% of your profits?
The research continues to reveal the importance of focusing on the bottom 20% of your Clients. Let’s think about your bottom 20%. How much are they costing your business each year to keep them on the books? Why are they Clients if you do not make a profit with them? Most businesses do not have unprofitable Clients on their books year after year. Banks and other businesses would charge higher fees to make their profit. Other companies would raise their prices to generate profits.
In reality, your top Clients are subsidizes your bottom 20%. Have you ever thought of it that way? The bottom 20% are usually high maintenance and drain employees’ energy and enthusiasm, slow payers, shop frequently, and usually have more claims. Your top Clients are the easiest to work with, they trust you, they value your advice, etc.
What would your company be like if you eliminated the bottom 20% that drain your profits? You may want to consider “firing” your bottom 20%. Let’s be clear, they are draining your profits, up to 80% of your profits. They are not, and few will ever be, profitable to your company. So you can increase their premium to make them profitable, tell them you will not renew them unless you write more business since currently they are not profitable, or tell them that you work only with Clients that give you all their business, as that is where you excel. When you have all their business, you can be most effective in eliminating and reducing their risks. Like dentists, you cannot just have a Client’s upper or lower teeth, just some of their business, but you need to have all of their business.
Let your competitor figure out how to make them profitable. Your best competitor can be running around serving more unprofitable and high maintenance Clients which in turn will give you the additional time to spend with your top Clients to dazzle and delight them. In turn they will stay for life and be fueling your agency’s growth while everyone is enjoying their work and having more fun!