Ouch Ouch Ouch Ouch…
I thank everyone who answered, but this time there was no exact answer to the quiz under the beach umbrella.
The quiz was:
Suppose you have 100 customers. Each customer spends € 1.000 with you.
Question 1: What is your income?
Answer 1 (obvious): 100 x € 1,000 = € 100,000
Question 2: And what is your POTENTIAL income?
Answer 2 (much less obvious): € 370,000!
What??? Three hundred and seventy thousand????????????? How the hell is that possible?
Triple the turnover with the same customers?
To understand this, we must start from the famous 80/20 Pareto Law. According to this principle, 80% of a result is produced by 20% of the elements that contribute to creating it.
– 80% of sales are made by 20% of salespeople
– 80% of profits come from 20% of customers
The principle can be repeated infinitely, so 20% of 20% produces 80% of 80%, or 4% produces 64% of the result… and so on.
As a result, customers are NOT all the same: THEY HAVE DIFFERENT SPENDING CAPACITIES
In the quiz I implicitly assumed to sell only one € 1.000 product, and all 100 bought that. However, if we had a larger product portfolio, there would have been customers willing to pay much more than the € 1,000 of the base product.
How much more?
An algorithm allows you to predict the maximum potential result. And in the case of the example, the total income could be over € 370,000!
According to this Pareto formula, the 100 customers may be willing to spend increasing amounts of money:
– the smallest customer would spend “only” 1,000 €
– while the biggest customer could spend up to 25,000 €!
Obviously, this does not mean that there is always a customer who is so big that he wants to pay € 25.000 for a € 1.000 product (I have never met him, but if you know him, please let me know…). It means that we should have a diversified offer that also includes a € 25,000 product.
So, what does this summer quiz teach us?
Whatever our customer base, it’s possible to charge them much more, satisfying the hunger of the most voracious customers with products/services at an increasing price.
But this is just a snack.
In the August number of the B2B Club Newsletter, I talk in more detail about all these concepts: who developed the algorithm, how to use the calculation tool, and above all what consequences we can draw for our product and price strategies, and how we can use the tool to make sales forecasts.