Sunday, July 05, 2009

The Pareto Principle: The Bottom 20% (Ie: Cheap Bastards) Self Identify Every Time!

At Exemplar, we always talk about value pricing and generally about the inherent integrity in a pricing model is designed to arrive at a price that is fair to both sides. But no matter how equitable your model, you just can't beat the Pareto Principle -- the principle that your top 20 percent of customers drive 80% of your revenue and your bottom 20% produce 80% of your unprofitable deals, complaints, write offs, etc! We all know that they can sometimes go by the name: "CHEAP BASTARDS!" Fortunately for Exemplar, since we determine a fair price in advance together with our customers (unlike our billable hour counterparts in the profession)we get to identify and weed out these leaches in advance, but for many companies these customer can be the bane of their existence. Fortunately, now that you are know the Pareto Rule you can identify the customers who do not value what you do and send them to your competition (who will not likely see it coming!)

At Exemplar, we identify and eliminate these customers like the game "Duck Hunt" on the original Nintendo! So, the next time you are hunting for revenue and meet one of these customers, remember that the goal of being in business is to be profitable, not to have revenue or even another customer! If you price on value, it is important to make sure your customers value VALUE! For the billable hour folks who didn't find out in time to not let them hire you, get your pencils out because it's "Write Off" time!