First off, this isn't hype, especially if you subscribe to the Pareto Principle, which states "20% of causes are responsible for 80% of effects." I discussed this in depth in my free report, but I'll summarize in this post.
16X is a principle made popular by Richard Koch, in his book "The Breakthrough Principle Of 16X." He also covers the Pareto Principle extensively in his book, "The 80/20 Principle." I find this stuff fascinating because it's all about optimization and learning how to maximize what you've got.
If you apply this principle to your customer base, you might discover that 20% of your customers are responsible for 80% of your profits. And if it's not 80/20, it may be 30/70 or even 10/90. But usually it's some lopsided figure. A very few usually carry the weight. It's a phenomenon that can be applied to many areas of life.
But as I revealed in the report, those few customers are worth many times more than the majority who only make up 20% of your profits. Let's do the math.
First, since we're dealing with unequal ratios, we need to come up with a figure that tells us each customer's contribution. Koch calls it, "payback ratio." Take 10 customers. If you apply Pareto's 80/20 rule, it'll look like this:
Now, you'll want to figure out the payback ratio for each customer:
$800/2 = $400
$200/8 = $25.00
The 2 customers are worth an average of $400 each while the 8 customers are worth an average of $25 each. $400 is 16 times more than $25. Thus, the 2 customers are worth 16x more than the majority.
But who are we usually focusing on? Yup, the masses. Who are we usually neglecting? Yup, the "vital few."
That's why, through my custom automation plugins, I go to great lengths to track and put to action (in an automated way) how much customers are spending, how frequently they are purchasing, how recently they've purchased, and where they fall in my customer hieararchy. The more they do, the more they get rewarded through special gifts, cards, acknowledgments... and the more I communicate with them both online and offline. I call it "Engineered Customer Ascension."
So that's how you make 16x. By focusing on the folks who are worth 16x more to you.
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