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

Everyoneknows that some customer segments are more valuable than others, but noteveryone is aware of the distribution of revenue between segments. Knowing therevenue distribution of a customer segment can help a supplier developstrategies to optimize retention and profitability of revenues.  Highrevenue segments should have a differentiated experience to retain revenuewhereas lower revenue segments must rely on automation to make them profitable.

Ina recent study of multiple suppliers, Globys Research was able to identify the50/10 Rule. Simply stated, more than 50% of revenues willcome from less than 10% of customers.  So who are thesecustomers?  Enterprises.

Todetermine this rule, Globys Research analyzed multiple suppliers lookingspecifically at the customer counts and associated monthly invoice values persegment. To ensure an accurate comparison, the following segment categorizationwas 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)

Foreach supplier, a percentage of total invoice value and percentage of totalcustomer count was calculated across the SMB, Mid-Market, and Enterprisesegments.

Here’sthe data:

It’simportant to note that the composition of these individual suppliers vary interms of customer counts, revenues, services, and products but regardless, the50/10 ratio remained consistent.

Onaverage, the Enterprise ratio came out to 75/4 – that’s 75% of revenuesattributed 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 totalbusiness base.

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

Whilesome suppliers had more than 90% of revenue from as low as 1% of customers, nosupplier had less than 50% of revenue from more than 10% of customers.

Theimplication is that suppliers need to take differentiated invoice-to-cashstrategies for their various customer segments.

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


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