Bigger Average Deals
How would it impact your business if, during your next fiscal year, the increase in average closed deal or contract size increased by 5%? And I’m not talking about just the dollar value, I’m also talking about the size of the deals themselves. And what if they happened year after year after year? What would change in your business, what would change for you?
I get excited when I talk about Deal Size. It’s a simple concept, but such a powerful and effective growth strategy.
Before I describe how your business can take control of Deal Size, I first need to share with you something that you likely don’t know about. It’s called the Pareto Principle, or as it is better known, the 80/20 Rule.
In a sale setting, the 80/20 Rule postulates that 20% of your customers produce 80% of your sales revenue. From an equipment standpoint, it also means that 20% of your customers buy 80% of the equipment that you sell.
The other half of the theorem is that 80% of your customers produce 20% of your sales revenue and buy 20% of the equipment you sell.
Like many others at college, I was a business major and was introduced to the 80/20 Rule in the second semester of my freshman year. What they didn’t teach me that semester was that the average buyer in the top 20% produced $16 of sales revenue for every $1 of sales revenue produced by the average buyer in the bottom 80%(1). The average buyer in the top 20% also buys 16 times more equipment than the average buyer in the bottom 80’%.
I hope you can see now why I get excited about Bigger Deals, and why they are so crucial to the growth of your business.
Earlier in this piece, I indicated that I would explain how your business could take control of Deal Size, and here is how to do it.
If you want to grow market share and sales revenue, you need to do two things. First, you want to segment your customers based on their total purchases in any 12-month period. It does not need to be your fiscal year. Any 12 consecutive months will do.
Not only do you want to segment your customers based on their total sales, but you also want to segment them based on their equipment and aftermarket purchases, by category.
When we segment sales data, it looks like this:
Exhibit A shows Total Purchase in descending order. The next columns show Equipment Purchases, Parts, Service and Equipment Rentals.
The colored sales results in the Total, Equipment, Parts, Service and Rental columns represent purchases that qualify as being in the top 20% for each column.
The boxes that are either not colored or blank signify sales results that did not qualify as being in the top 20%. The boxes you see that are blank represent aftermarket sales opportunities.
Business’ in mature markets (see CFI Industry Life Cycle) have only two ways to grow their businesses. One, way, is by selling more to their existing customers. Segmenting your customers, as illustrated in the 80/20 Rule sample above, indicates specifically where opportunities exist to sell more products and services to your customers.
The second way to grow your business in a mature market is by proactively taking customers away from your competition. That process begins by first determining which of your customers qualify as being in the top 20%.
Once you know who they are, you can use their demographic information to source a list of all of the businesses in your sales territory that match the demographics of your best customers.
Once you acquire that list, remove your customers from it, and the business’ left on the list are your competition’s best and most valuable customers.
I know that sounds simplistic, and yes, there is quite a bit of work involved, but what value would you place on the information. My bet is you would lose some sleep if your competition had a list of your most valuable customers. But, would it interrupt your sleep, if you had a list of your competition’s best customers? I think you’d sleep just fine.
If you would like to have such a list, we can provide it for you. It is one of the services we offer.
Mathematically, the income ratio between customers in the top 20% and customs in the bottom 80% should be 16 to 1. We routinely analyze customer purchase data, and I have never seen a revenue ratio as low as 16 to 1. Usually, it’s in the mid-twenties, and I’ve seen it as high as 34 to 1.
Truly, if you want to grow market share and increase your sales revenue, focus your marketing and sales efforts on customers in the top 20%. This is the most efficient, simple, and quickest means of doing it.
If you would like to know more about Bigger Average Deal you can schedule a conversation with me at https://calendly.com/talkwithkent