The 50/10 rule: Don’t treat every customer the same

Everyone knows that some customer segments are more valuable than others, but not everyone is aware of the distribution of revenue between segments. Knowing the revenue distribution of a customer segment can help a supplier develop strategies to optimize retention and profitability of revenues.  High revenue segments should have a differentiated experience to retain revenue whereas lower revenue segments must rely on automation to make them profitable.

In a recent study of multiple suppliers, Globys Research was able to identify the 50/10 Rule. Simply stated, more than 50% of revenues will come from less than 10% of customers.  So who are these customers?  Enterprises.

To determine this rule, Globys Research analyzed multiple suppliers looking specifically at the customer counts and associated monthly invoice values per segment. To ensure an accurate comparison, the following segment categorization was applied across all suppliers:

• SMB (customer invoiced less than $1k per month)
• Mid-market (customer invoiced $1-10k per month)
• Enterprise (customer invoiced more than $10k per month)

For each supplier, a percentage of total invoice value and percentage of total customer count was calculated across the SMB, Mid-Market, and Enterprise segments.

Here’s the data:

It’s important to note that the composition of these individual suppliers vary in terms of customer counts, revenues, services, and products but regardless, the 50/10 ratio remained consistent.

On average, the Enterprise ratio came out to 75/4 – that’s 75% of revenues attributed to less than 5% of the total business base. In comparison, for SMB, the average ratio was 11/80 – 11% of revenues attributed to 80% of the total business base.

Was this skewed by a few outliers?  No.  Here’s the range:

While some suppliers had more than 90% of revenue from as low as 1% of customers, no supplier had less than 50% of revenue from more than 10% of customers.

The implication is that suppliers need to take differentiated invoice-to-cash strategies for their various customer segments.

Does this ring true among your customer base?  If so, how are you tailoring your portal experience to meet the needs of your most valuable segment?