Have you seen the movie, “Weapons?” At 2:17 AM a group of grade school children leave their homes, and run, arms pointed behind them like missiles into the long dark night and disappear. The parents are frantic with grief and anger.

The movie is a layer cake of metaphors, about childhood trauma, power, and witch hunts, metaphorical and literal.

What amplifies the anxiety for the characters in the movie and the viewers, is the ambiguity of not knowing why the children left.

Humans are wired to answer the question, “why.” 

From the existential understanding of “why are we here?”  to the mundane, yet important business questions such as, “Why sales are down year over year;’ knowing “why” creates psychological safety.

Psychological safety helps you to feel more powerful.

Feeling powerful allows you to exercise personal agency and self-determination, helping you be brave while facing the abyss of the unknown.

Even when you don’t have the power to change a situation, the insight that comes from understanding “why” something is happening will produce more enlightened decisions and better (hopefully more profitable) outcomes,  rather than panicked reactions.

For example, you may have noticed that the cost of Pay-Per-Click advertising has become much more expensive, almost too expensive.

You do your research and discover that an out-of-state Private Equity firm has just purchased not one, but two competitors.

As a result, they are pouring money into digital campaigns, driving up your costs to compete.

Rather than panic about your digital marketing costs increasing, you decide instead to invest in a new, hyper-local strategy.

Again, understanding the “why” will help you make better business decisions.

Conversely, a lot of business leaders substitute assumptions for real knowing.

Tricky Assumptions

If you’re busy putting out fires and reacting to your day rather than designing it, then you are likely to make assumptions about the business that you haven’t had time to vet with your own internal data.

Assumptions in Action

Recently, I was invited to teach a webinar on sales and customer retention at a Technology Group meeting. In attendance were a mix of about twenty or so business owners and business development professionals, from a variety of technology backgrounds.

During the session I distributed a survey that asked four questions about client retention practices:

1. Do you track your client retention or churn rates?
2. If so, how does it compare to the benchmark for your industry?
3. Do you know your 80/20?
4. Do you have regular Quarterly Business Reviews with your top clients?

The results were as follows:

1. 30% of the attendees said that they track retention rates.
2. Of the attendees that compared retention rates to the benchmark, 20% answered, “yes” their retention rates meet the industry benchmark and 10% answered, “no.”
3. 50% of attendees answered, “yes” when asked about knowing their 80/20.
4. 30% answered, “yes” when asked about performing Quarterly Business Reviews. Interestingly though, it wasn’t the same people who tracked their conversion rates.

What the results say:

It has been my experience that most busy business leaders don’t actually track these metrics and other key metrics. They generally do a quick look at top-line sales and maybe net profitability. (Just to be clear, it’s vital to do these analyses when things are going well, to replicate the successes).  

The fastest way to new revenue

The fastest way to generate new revenue is to upsell current customers.

 But before you dive in you should understand which customers provide the most revenue and which require more attention.

To help, let’s dive deeper into understanding your 80/20, or Pareto’s Principle.

Pareto’s Principle is a law used in statistical analysis, that states 80% of the effects come from 20% of causes.

Interestingly, it is an unscientific “law,” but in my decades of experience, when it comes to parsing sales data, it has been generally true for a healthy organization.

While doing your analysis, you may find that one customer is an outlier in your revenue generation. That is, one customer produces 40% of your TLR, presenting a single-point-of failure.

Your analysis may also find that the most labor-intensive customers bring in the least amount of revenue and are the least profitable.  

I’ve worked with clients on many occasions where this has been true.

In fact, just last week, I had a client discover that her top client produced 18% of total revenues and the most vocal clients, the ones she thought were much more profitable, only produced 2% of total revenue.

Spoiler alert.

It turns out that in the movie “Weapons,” the villain’s “why” is discovered by the protagonist and he uses this knowledge to free himself and others.

Stress thrives and expands when you don’t have processes and systems to deal with the unknown “why’s.”  It makes running a business or a department successfully much riskier. 

Producing more revenue means you need to shine a thoughtful light on the aspects of the business that you’ve been ignoring, using the information to make reasonable decisions, and working on your mindset and mental game.

If you want to know which numbers you should be paying attention to, then make sure you read my upcoming newsletters.

Mindset shift of the week

People buy confidence all day. So, charge for your products and services what they are worth and what the market will bear. 

Asking for the sale and being confident in your prices is challenging for most people.

I’ve seen the most seasoned salespeople and business owners alike throw themselves under the bus offering big discounts before any pricing negotiations start.

Confidence is not arrogance. It is a demonstration that you believe in your company’s ability to deliver on its promises and that the customer has made the right decision in choose you. 

You’ve got this!