A framework called Pareto Overlap maps clients and products into four quadrants based on value and profitability. Protect your best clients buying your best products, cut loose unprofitable relationships, and push low-value clients toward higher-margin offerings or out the door.
I want to talk about the Pareto overlap. All these tools, by the way, are@recessionresponse.com and so here's the graphic I made for you and I want to walk you through it. There are four distinct relations we have with clients based upon the Pareto principle. Pareto principle is the 8020 rule and the general concept is where 20% of your clients yield 80% of your profitability. And conversely, if we look at your offering, 20% of your product offering is yielding 80% of the profitability. So we want to see if we can match up your best clients. And I'll hold a little closer to the screen here. Your best clients, the top 20%, the best clients are buying from you, who are buying your best offering. That's relationship number one, both in a literal sense and a figurative sense. We got to take care of these clients and the word here is protective. Actively communicate with your top clients. They represent the substance, the core essence of your company must do everything to sustain and support that relationship and to protect and serve them. The second scenario I want to talk about is down here. These are the lowest 20% of clients who are buying unprofitable products. Those are the clients that are never satisfied. They complain, they're always pointing out the ways you're doing things wrong. They require you to redo work and they don't pay you on it. Well, it gets even worse during a crisis in a recession. They pay less. They even have more excuses and their demand gets more and more heightened. Those clients who are buying unprofitable products, you want to jettison those clients, they are costing you more than ever to keep them on. Now just getting rid of them can allow you to reduce your cost significantly. There's two other scenarios and because of the crisis, the way we have to handle is shifted a little bit from I traditionally teach the clients, your top clients who are buying your non profitable products. These clients is an education opportunity on the offering and that's remained the same in good economic times or weak economic times. These clients, we simply want to advise them on other product offerings. We have the other scenario, the last scenario here is this one where you have, I'm sorry, yeah, low end clients here who are buying very profitable products. This used to be clients that you want to jettison also because even though they're buying good clients, buying good offering, since they're bad effective clients, they're not paying you for it. There's a big cost associated with that. But now as an education on the relationship, to have a very candid conversation with them saying, listen, for us to keep working with you, here is the requirements, not the expectations, the requirements on your behavior. If you don't pay on time, we are done. If you constantly demand us to redo work even though we've done excellent work, you're done. And if the clients don't agree to that or they demonstrate their behavior, they don't agree to it, they'll never be resolvable. And then you need to jettison them. But it's an education opportunity. It's hard conversation in the Middle we have our kind of middle clients and we have our middle offerings. Right now it's all about maintaining and maturing. How do we sustain these clients and bring them up? They are not the number one phone call that's your top clients, but how do we mature these clients? Our offerings? What offerings do we have that we can maintain and mature? Perhaps your traditional offering is going to be hard to sustain. Maybe you have to have a modified offering and bring that up. So this is what I call the Pareto overlap. It gives you the four quadrants of the type of clients you have and how you need to cater to them or in some cases, remove them from your business effectively during the crisis. For more tips like this, you can go to mikemotorbike.com and specifically go to the recession response page. I'm compiling ideas like this and download sheets for you so that you can act upon it. Wishing you tremendous success and continued profits even during a struggling time.
