MLM Networking: Apply the Pareto Principle

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How to use the Pareto Principle to pick your most profitable customers?

Growing a customer base is not always the best way to grow an mlm networking business. Channeling resources toward a few highly profitable customers is better than chasing many low yield customers when growing an mlm networking.

Picking the most profitable customers to pursue and grow can be done using the Pareto principle. What you need: List of your customers, Total sales per year per customer, Number of orders per customer over time. Tally of problem reports and enhancement requests by each customer for the past year Cost of resolving problem reports or enhancement requests.

How to: 1. Create a spreadsheet that lists each customer. 2. Insert a column that includes total sales per year per customer. 3. Total the value of sales for all of these customers. 4. Divide the total sales per year for each customer by the total sales. This provides the percentage of your sales that each customer represents. 5. Sort the customers by total sales per year from lowest to highest. 6. Create a new column for “cumulative percentage”. 7. Add the total percentage of sales for sales up to row for each row. 8. Review the list for the point at which the bottom 20% of customers are equal to about 80% of sales.

The Pareto Principle states that about 20% of all sales will come from 80% of customers while about 80% of sales will come from 20% of the customers. However, this split can be 85-15 or 25-75. 9. Draw a line at that Pareto point. In a spreadsheet, you can highlight the profitable few customers who are generating the most sales. These are the customers are most likely generating the most profit. . 10. Create another column for the total number of problem reports and enhancement requests for each customer. Waiting until the least valuable customers have been removed reduces the amount of time and work required to update the spreadsheet. 11. Input the cost, if known, of these problem reports and enhancement requests for each customer. 12. Identify customers in the list with few problem reports and enhancement requests as likely customers to keep. 13. Note the bottom half of the customers who have little impact on the bottom line. They should be identified in a way that eliminates them from further consideration. This will be done at a later step when factoring in the cost of customer support. 14. Subtract the cost of problem reports and enhancement requests from the sales for the remaining customers who have significant impact on profit but require time and resources to support. 15. Strike from the list any customers for which the cost of problem reports and enhancement requests generates a negative value. 16. Remove from the list any customers for which the sales total minus the cost of keeping them is less than 10% the value of sales. The effort of supporting them is not worth the profit that they generate. 17. Create a new list of these few remaining customers. These are customers who either generate the most sales or generate a significant chunk of sales but require little investment. 18. Review sales data for the lower volume customers whose trend is rising or high profit customers whose orders are declining.

Channel the resources previously spent on lower value customers to improve service to these high quality mlm networking customers. Tip: Identify for review the remaining customers who generate significant sales or profit margins but are dissatisfied. Managing customer expectations, improving internal quality levels or possibly dropping them as customers to allow that time and energy to be spent on more profitable customers are all options. However, by having eliminated customers who do not significantly add to the bottom line, your organization now has more resources to improve service for those customers. Warning: Review sales volume history before making a final decision at step 17. If one of the most profitable customers has declining sales volume, research the reasons why. Cutting other customers from your base when one of your company’s pillars is eroding is not a good idea. Mlm networking requires as many productive customers as possible, and once cut, it is very difficult to woo someone back.

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