The document discusses the importance of focusing efforts on key customers who provide the most value. It notes that on average, 20% of customers account for 80% of sales and profits. This means the top 20% of customers are 16 times more valuable than the bottom 80% of customers. Losing a key top 20% customer can significantly impact profits, so maintaining strong relationships with these valuable customers should be a priority.

1. READY?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

2. PREMISE:
A
business
cannot
afford
to
lose
customers
from
it’s
top
20%
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

3. IF:
Your
business
has
100
customers,
it’s
likely
that
20
of
them
yield,
on
average,
1,600%
of
the
profit
vs.
the
boMom
80%
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

4. PREMISE:
Pursuing
new
customer
acquisiQon
is
1,000%
more
costly
that
keeping
exisQng
customers
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

5. PREMISE:
It
takes
16
new
customers
in
the
boMom
80%
to
replace
1
customer
in
the
top
20%
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

6. Never
lost
a
key
customer?
No
key
customers
at
risk?
þ
No
–
have
a
nice
day
þ
Yes
-­‐
let’s
keep
going
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

7. What’s
going
on
in
your
organizaQon?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

8. Do
you
REALLY
want
to
know?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

9. How
much
do
you
REALLY
want
(need?)
to
know?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

10. The
7th
C
of
Credit
• Character
• Capacity
• Capital
• Collateral
• Condi9ons
• Cash
Flow
• Customers
(s9ckiness,
profitability,
ABC)
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

11. Feedback...
Basing
decisions
on
facts...
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

12. Opinion
without
facts
is
opinion
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

13. What
do
you
KNOW
about
your
business?
?
Where
is
the
business
coming
from?
?
How
much
does
it
cost
to
get?
?
How
much
did
it
cost
to
acquire
a
(the)
customer
(CCA)?
?
How
much
is
a
(that)
customer
worth
to
us
(LTCV)?
?
What
is
the
value
of
our
salespeople?
?
What
is
the
value
of
our
customer
service
people?
?
Are
we
paying
sales
OR
customer
service
too
much
OR
too
liOle?
?
How
reliable
are
our
sales
forecasts?
?
How
can
we
make
them
more
accurate?
?
How
dependent
are
we
on
which
customers?
?
How
much
are
orders
cos9ng
us?
By
type?
By
customer?
?
What
opportuni9es
are
we
not
pursuing?
Why?
Why
not?
?
What
DON’T
you
know?
(too
busy?)
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

14. The
Pareto
Constant
Isn’t…but
it
IS
average
On
AVERAGE,
20%
of
any
business’s
customers
account
for
80%
of
all
sales.
The
20%
group
represents
a
4:1
ra9o
of
your
results,
in
the
reverse,
the
80%
group
produces
20%
of
results.
Hence,
the
results
raQo
is
4/.25
or
a
16:1
raQo
of
return.
A
dollar
spend
on
each
group
with
equal
effec9veness,
will
yield
$4.00
from
the
20%
group
and
25¢
from
the
80%
group
.
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

15. Why
80/20
=
16:1
• If, on average, 20% of any business’s customers account for
80% of all sales….then….
• The 20% group represents a 4:1 ratio of your results (80÷20)
• In the reverse, the 80% group produces 20% of your results, or
a .25:1 ratio (20÷80).
• Hence, the results ratio between average accounts (or
members of each 80/20 group) is 4/.25 and this
represents a 16:1 ratio of return.
• In terms of where you spend your time and money, a dollar
spent on each group with equal effectiveness, will yield
$4.00 from the 20% group and 25¢ from the 80% group
(because it will have to spread over 4 times as many
customers with less revenue each….essentially a 4:1
ratio with results magnified 4X).
• If your customer revenue contribution ratio was 90/10, the
resulting contribution ratio would be an astounding 81:1
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

16. Where
to
apply
the
effort…or,
what
happens
if
you
don’t…
Annual
Sales
$
15,000,000.00
number
of
customers
200
average
sales $
75,000.00
top
20%
of
sales
$
12,000,000.00
average
top
20% $
300,000.00
bottom
80%
of
sales
$
3,000,000.00
average
bottom
80% $
18,750.00
Profit
$900,000.00
$
4,500.00
$
720,000.00
$
18,000.00
$
180,000.00
$
1,125.00
%
6%
80%
20%
#
of
80%
customers
to
replace
one
20%
customer
=
16
Annual
Sales
$
7,500,000.00
number
of
customers
150
average
sales $
50,000.00
top
20%
of
sales
$
6,000,000.00
average
top
20% $
150,000.00
bottom
80%
of
sales
$
1,500,000.00
average
bottom
80% $
9,375.00
Profit
$450,000.00
$
3,000.00
$
360,000.00
$
9,000.00
$
90,000.00
$
562.50
#
of
80%
customers
to
replace
one
20%
customer
=
16
%
6%
80%
20%
#
of
customers
down
by
25%
Average
sales
down
by
33%
Profits
down
by
50%
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

17. What’s
wrong
with
the
math?
• If, on
•
•
•
•
•
average, 20% of customers account for 80% of
sales….for that ratio to result in a 16:1 profit contribution
ratio….
The assumption is that all customers are equal and all
transactions are equal, in terms of time, effort and costs.
The assumption is bad ( i.e., MAY be bad as it is not based on
the facts) but it is extremely useful to determine factually
HOW bad.
Big customers often don’t produce big orders but lots of small
ones resulting in a higher total order cost.
Big customers often know their impact on your business and
demand more (and costlier) attention.
Big customers may have no potential for growth only decline,
while small customers may have great future potential.
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

18. Focus….but
how?
Ø Concentrate
on
leveraging
ALL
your
resources….people,
9me
and
money
Ø Where
is
the
leverage
point?
Ø THAT’s
the
first
decision…..
Ø What
20%
of
your
(or
your
firms’)
ac9ons
create
80%
of
the
results?
80%
20%
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

19. Becoming
more
profitable
doesn’t
change
the
contribuQon
mix
of
your
customers
Annual
Sales
$
15,000,000.00
number
of
customers
200
average
sales $
75,000.00
top
20%
of
sales
$
12,000,000.00
average
top
20% $
300,000.00
bottom
80%
of
sales
$
3,000,000.00
average
bottom
80% $
18,750.00
Profit
$900,000.00
$
4,500.00
$
720,000.00
$
18,000.00
$
180,000.00
$
1,125.00
%
6%
80%
20%
#
of
80%
customers
to
replace
one
20%
customer
=
16
Annual
Sales
$
15,000,000.00
number
of
customers
200
average
sales $
75,000.00
top
20%
of
sales
$
12,000,000.00
average
top
20% $
300,000.00
bottom
80%
of
sales
$
3,000,000.00
average
bottom
80% $
18,750.00
Profit
$1,350,000.00
$
6,750.00
$
1,080,000.00
$
27,000.00
$
270,000.00
$
1,687.50
%
9%
80%
20%
#
of
80%
customers
to
replace
one
20%
customer
=
16
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

20. Cause...
And
affect...
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

21. Lonely
at
the
top…
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

22. Feedback
is
good….do
you
REALLY
want
it?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

23. Playing
BINGO
with
sales?
S
A
L
E
S
"If
we
deliver
that
order
l ate,
we'll
"The
customer
"We're
on
target
"We'll
never
l ose
"We
have
to
l ower
lose
all
our
doesn't
care
about
to
meet
quota."
that
customer."
our
prices."
business
with
guarantees."
them."
B
"The
customer
"The
competitor
"If
you
don't
bring
just
got
a
new
"Our
customers
told
the
customer
in
your
quota
purchasing
agent
"You
can
tell
me
will
only
buy
new
that
they
can
three
months
i n
a
that
had
a
the
truth."
products."
deliver
i n
10
row,
you
will
be
relationship
with
days."
terminated."
our
competitor."
I
"We've
got
to
meet
or
beat
the
competitor's
price."
N
Our
customers
are
"If
there
was
Our
competitor
"We
don't
need
to
"We've
got
all
the
not
i nterested
i n
something
wrong,
has
better
lower
our
prices." right
products."
new
products
/
I'd
tell
you."
pricing."
services."
G
"We
offer
better
"The
previous
"I
can
never
meet
value
than
the
"Our
competitor
"If
there
was
Account
Executive
quota
with
that
competition
so
we
has
better
anything
wrong,
ruined
this
territory
don't
need
to
products."
I'd
know."
account."
(customer)."
compete
on
price/"
O
"The
customer
loves
me."
"Our
customer
service
i s
hurting
our
sales."
"We'll
never
get
that
customer
back."
"We've
got
the
wrong
salesperson
on
that
account."
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

24. Employee
Training?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

25. Are
your
people
talking
to
each
other?
………….
are
they
listening?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

26.
“I
want
people
around
me
who
will
tell
me
the
truth
…
even
if
it
costs
them
their
job.
“
Samuel
Goldwyn
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

27. A
teachable
moment
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

28. Where
would
everyone
rather
be?
Why?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

29. Home
/
Work?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

30. Know
(and
make
sure
your
people
know)
the
consequences
to
commitment
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

31. Awareness
The
FIRST
step
in
the
soluQon
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

32. The
Abilene
Paradox
…
why
it’s
difficult
to
manage
Organiza9ons
frequently
take
ac9ons
in
contradic9on
to
what
they
really
want
to
do
and
therefore
defeat
the
very
purposes
they
are
trying
to
achieve.
It
also
deals
with
a
major
corollary
of
the
paradox,
which
is
that
the
inability
to
manage
agreement
is
a
major
source
of
organiza=on
dysfunc=on.
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

33. The
challenge
in
managing
“agreement”….
Leaving
Abilene…
ü
Gegng
feedback…..see
Jack
Welch’s
quote
at
boOom
of
slide
ü
Segng
the
stage
to
enable
feedback…see
source
below
ü
Recognizing
if
you
really
do
that
ü
Finding
someone
who
can
(
and
trus9ng
to
listen
)
ü
Rewarding
feedback,
including
“not
punishing”
ü
Being
aware
of
where
you
are
(
are
you
IN
Abilene?)
ü
Being
sure
that
you
are
correct
about
your
loca9on…
i.e.,
stopping
to
ask
direc9ons.
Chris
Argyris
in
Interven'on
Theory
and
Method:
A
Behavioral
Science
View
(Addison-­‐
Wesley,
1970)
gives
an
excellent
descrip9on
of
the
process
of
“owning
up”
and
being
“open,”
both
of
which
are
major
skills
required
if
one
is
to
assist
his
organiza9on
in
avoiding
or
leaving
Abilene.
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

34. Is
SALES
EVERYone’s
job?
Form
DOH!
To
DUH!
and
in
between…
"
"
"
"
"
"
"
"
"
"
"
"
"
Sales
Marke9ng
Product
Development
Manufacturing
Management
Shipping
Quality
Assurance
Tech
Support
Recep9on
Purchasing
Human
Resources
Finance
Customer
Service
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

35. “Seek
the
advice
of
a
good
consultant”
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

36. Who
knows
what
to
do???
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

37. If
you
knew
what
to
do,
who
would
do
it?
The
Leadership
Conundrum
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

38. SO....
1.
2.
3.
4.
5.
6.
Get
the
facts
PriorQze
Plan
Act
Measure
Repeat
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

39. OR....
Do
it
yourself...
What’s
the
cost
of
NOT
doing
it?
“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch