What Is the 95:5 Rule? Does It Apply To Your Company?

 

In 2021, The B2B Institute, a think tank supported by LinkedIn, published a report featuring several papers authored by researchers with the Ehrenberg-Bass Institute for Marketing Science.

One of the papers was written by Professor John Dawes, the Associate Director (Operations) at Ehrenberg-Bass. The main topic of Professor Dawes' paper was how advertising works, but he began by describing what he called the 95:5 rule. He wrote:

"It might surprise you to learn that up to 95% of business clients are not in the market for many goods and services at any one time. This is a deceptively simple fact, but it has a profound implication for advertising. It means that advertising mostly hits B2B buyers who aren't going to buy any time soon."

The 95:5 rule is based on business buying patterns. Professor Dawes gave this illustration of the rule:  "Corporations change service providers such as their principal bank or law firm around once every five years on average. That means only 20% of business buyers are 'in the market' over the course of an entire year; something like 5% in a quarter - or put another way, 95% aren't in the market [in any given quarter]."

Professor Dawes argued that advertising "works" because it builds and refreshes memory links to a brand in buyers' minds. These memory links will be activated when buyers do come into the market. Therefore, he writes:

"To grow a brand, you need to advertise to people who aren't in the market now, so that when they do enter the market your brand is one they are familiar with. And, that they mentally associate your brand with the need or buying situation that brought them into the market. That way, you increase buyers' purchase propensity. And if you do that across enough buyers, your market share will grow."

Professor Dawes' paper should trigger two questions in the mind of a B2B marketer.

1. Does the 95:5 rule apply to my company/in my market?
2. Should I follow Professor Dawes' advice and market to buyers who aren't "in the market?"

In this article, I'll discuss some of the major nuances of the 95:5 rule. I'll address the second question in a future article.

Is the 95:5 Rule Valid and How Does It Actually Work?

The 95:5 rule makes sense on an intuitive level. If, for example, your company has just purchased and installed a new HVAC system for its manufacturing plant, it probably won't need to replace that system for several years. So, it won't be in the market for HVAC equipment for quite some time.

The rule is also supported by other research. For example, recent research by NetLine Corporation (the operator of a content syndication platform) found that 30.8% of the B2B professionals who access content via the NetLine platform expect to make a purchase within 12 months, 15.2% expect to buy within six months, and 7.6% expect to make a buying decision within three months.

It's important to recognize that the percentage values in the 95:5 rule were never intended to be interpreted literally or viewed as universal. In his paper, Professor Dawes wrote, "The 95% figure is not meant to be a precise rule. We're using it as a heuristic to get the idea across that the vast majority of businesses, for a large proportion of products, are not in the market in particular time periods."

In fact, the 95:5 rule can't be universal or precise for several reasons. Here are three of the more important reasons:

Category Differences - The percentages of buyers who are in or out of the market during a given period are based on how frequently they purchase a particular product or service, and purchase frequency can vary significantly across product or service categories. For example, the percentages will be quite different for a company selling industrial machinery that customers purchase about every ten years than for a company selling personal computers that customers replace every four or five years.

Averages Aren't Always Accurate - The percentages produced by using the rule are product/service category averages, and they may not accurately reflect the purchasing patterns of your company's customer base.

Unexpected Events - The rule doesn't account for unexpected events that may disrupt normal customer buying patterns. For example, the appearance of a major new technology may cause customers to replace their manufacturing equipment more quickly than usual.

Even with these caveats, the 95:5 rule describes a valid and useful principle. It can, for example, enable marketing and sales leaders to estimate when particular customers or prospects may be ready to initiate a buying process.

Illustration courtesy of Colin Kinner via Flickr (CC)

https://tinyurl.com/ye293ffj

What Makes a Client Toxic?

 Some 64% of American workers say they've had to deal with a toxic client in the past two years.

That's according to a survey conducted by Inc and Go of 1,000 people in the United States who are currently employed.

An infographic (below) summarizes key findings from the research.

Specifically, it looks at the most common signs of a toxic client and breaks down which signs are seen most often by employees, managers, and business leaders.

Check out the infographic:

https://bit.ly/3UhnfVX

6 Types of Clients You're Better Off Without

JACQUELINE WHITMORE

CONTRIBUTOR

If you’ve been in business for any length of time, you’ve had at least one bad client. While some entrepreneurs seem to be born with an invisible force field that repels bad clients, others attract them like a picnic lunch draws ravenous ants.

If you’re in the latter category, there’s hope. You too can learn to spot bad clients before they become a drain on your time and on your business.

There are many different types of bad clients, typified by certain undesirable traits. Here are six of them.

1. Time wasters.

Time is money, and the financial success of your business depends on using your time efficiently. Clients who tell you they want one thing and then change their minds time and time again after you’ve provided exactly what they said they wanted waste your time and make you less productive. There are only a limited number of hours in a day, so don’t squander them on bad clients who continually disrupt your workflow.

2. Energy zappers

Along with time, energy is an entrepreneur’s most valuable and salable commodity. Uncommunicative, uncooperative or just plain obnoxious clients drain your energy. Their tactics can range from persistent passive-aggressiveness to outright verbal abuse. Worst of all, their negativity is contagious. Try to drop these vitality-vampires like a bad habit before you get sucked in.

3. Fee hagglers.

Clients who pester you to lower your fees don’t truly value what you provide, and most likely never will. However, there are exceptions. Clients who are trying to get their business off the ground may have limited funds, or may be working for a cause that you passionately support. Just be aware of what really matters to you, and set clear boundaries when deciding whether to accept “charity” cases.

4. Commitment phobic.

Some people like to “shop around” and consider all their options before they choose how to spend their money. There's certainly nothing wrong with that, as long as their actions can signify that they’re serious about finding the right fit for their particular needs. Beware. Their indecisiveness could be a red flag warning they may well repeat that pattern once you start working together.

5. Criticizers and complainers.

Some customers are never satisfied, no matter what you do to please them. When clients provide negative feedback about your pitch or the work you’ve done, it’s important to determine its validity and make improvements as indicated. But some people make it a habit to continually criticize and complain about everything because nothing is ever good enough for them. It’s good sense to avoid these bad clients whenever possible.     

6. Late payers.

You have a business to run, which requires steady cash-flow, so clients who don’t pay invoices on time disrupt your financial viability. But perhaps more importantly, people who constantly delay payment don’t sufficiently appreciate the value you bring to their business. When clients fail to meet payment deadlines, stand your ground. If you’ve met your obligations, they need to meet theirs. Those who repeatedly don’t pay up promptly are less-than-ideal clients.

To run a successful business, you can't spend your time nursing bad clients. Avoid them (or fire them) and you will have more room to focus on clients who are a joy to work with and appreciate you.