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Thread: The 80 / 20 Rule: A Discussion
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11-29-2006, 11:33 AM #1Web Hosting Master
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The 80 / 20 Rule: A Discussion
You may or may not be familiar with the 80/20 rule. The best way to define it is to give some examples.
Italian economist Vilfredo Pareto discovered this imbalance in the 19th century, and it is still very true.
* 80% of people live on 20% of the land.
* 20% of people have 80% of the wealth
* 20% of criminals commit 80% of crimes
* 15% of population uses 85% of energy
* 20% of suppliers have 80% of market share
...and even carpet (20% gets 80% wear and tear)!
So, how does this apply here?
Well, 80% of the clients give you 20% of your work and likewise, 20% give you 80% work. I found this to be true after studying my helpdesk logs. The scales are even more tipped towards a 95/5 rule - in my case 95% of the tickets were from 5% of the clients.
So the question is, why not eliminate the top 5%, for the sake of profitability? Is this legal, I don't know... but it is very profitable and extends life.
Now, wieghting this 5% of the heavy users for what they pay, the ratio looks even worse. My higher paying clients (say, a $80 reseller) do not submit nearly as many tickets as the $20 reseller does.
What's the wisdom of the community say?
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11-29-2006, 11:53 AM #2Web Hosting Master
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80% of hosts on WHT have 20% of a clue
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11-29-2006, 12:02 PM #3Web Hosting Guru
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Originally Posted by Dave B
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11-29-2006, 12:04 PM #4Web Hosting Master
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20% of WHT members get 80% of the warnings.
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11-29-2006, 12:57 PM #5WHT Addict
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Originally Posted by GlobalWebDan
LOL...
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11-29-2006, 01:14 PM #6Web Hosting Master
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Wow - way off topic guys. Are you able to offer any suggestions to what was asked?
Unfortunately I would have to say that you can't drop those 5% because they will be the 5% that actively post in forums how bad your service is and if word gets out that you are dropping clients because they submit too many support tickets, that won't look favorable on your site.
People generally buy smaller packages when their knowledge on hosting is fresh and thus, they tend to ask more questions. As they learn and become familiar with the in's and out's - their questions will lower and they will possibly upgrade.
But in a nut shell - that's simply hosting. You take the good, you take the bad and what do you have, the facts of life. (wow - dating myself some there)
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11-29-2006, 02:23 PM #7Junior Guru Wannabe
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I have to agree with jerrett, unless those clients cause a lot of issues etc you're just gonna have to live with it. Doesn't matter how much you helped them or gave them support, if you just drop them they are going make a noise
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11-29-2006, 02:28 PM #8Web Hosting Master
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It was more theoretical than anything, and, as the topic says, I put it out there for intelligent discussion. (Thanks Jarett)
Not so much was I looking for advice as people's general opinions. I will tell you that many professional fields (not hosting, unfortunately) heavily look at which clients they want to serve and which they'd rather pass on.
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11-29-2006, 03:14 PM #9Web Hosting Master
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Surely these 20% of users qutien down after a while? I've not got that many users but I do find, looking though stats, tha after a couple of months after new signups have settled in then they rarely open tickets.
I don't know what I'd do if I had 20% of my users constantly requesting work done, most likely pull my hair out
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11-29-2006, 04:32 PM #10Newbie
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drewnick,
Well, dropping them away is an option if you have a really big client base, and you think your earnings will improve… you know we are "in business".
But if I think about my own experience, it's better to exactly define the limits of the help desk and try to bill the client for whatever isn't included in your "standard support limits".
Your help desk, except for key accounts, should only answer questions about control panel/hosting platform.
I mind, for example we answer questions like: "How can I enable apache SSL in my hosting plan?", but not something like "How do I use rowback statement in MSSQL?".
And you know, you never say "NO! We will NOT DO THAT" you answer "Of course we can help you, but It will cost you N$"
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11-29-2006, 05:13 PM #11Web Hosting Master
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We have fired customers before for being too support intensive. And we have also flat out told some customers (resellers and dedicated customers) that their support incidents would become billable, as they were just clearly forwarding on questions from their customers (several per day, verbatim) without any investigation or troubleshooting by themselves.
In the end, you have to look at what it costs you to support those high support customers. Will you actualize any savings by firing them? For example, if you are able to save $2000/mo in staff or support costs by firing $1000/mo of customers, well that's basically a no-brainer. You will net $1000/mo and save yourself a lot of hassle.Jay Sudowski // Handy Networks LLC // Co-Founder & CTO
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11-29-2006, 06:31 PM #12Web Hosting Master
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IT would need to be clearly stated in you Terms on how you plan to handle support intensive clients.
On your reseller account - you would need to state that you only handle support issues related directly to your clients site and not request from their clients. Though this sort of defeats why many people get a reseller account, as they don't know that much about hosting yet and rely on the provider to help them out, but it is an option that could be effective.
In the end - when is too much? Do you set a limit or just drop them at will? Would this apply to customers that are difficult?
If you are in hosting to only provide space and limited support, then please state that on the site other wise I would suggest owning up to the part of hosting being a service which normally includes support. Regardless if your guru or not - that support should be available without question 24/7 - unless otherwise stated.
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11-29-2006, 08:31 PM #13Web Hosting Master
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You don't "just drop" or "fire" clients without giving them plenty of warning. 5 years ago I implemented an internal rating system. It was made public to all of our customers over a year ago.
It is based on the premise that certain types of customers are highly prone to cause certain types of problems, so it looks for red flags and weeds them out before they get too comfortable.
Every customer is given a score between 1 and 10, which is updated every 24 hours based on information in multiple customer databases. Without going into too much detail, it looks at three main factors and 16 subfactors. It is 100% database driven, so there is no human interference whatsoever. It has been incredibly successful at converting problem customers into respectful customers, and getting rid of the remaining few who cause trouble for the sake of causing trouble. It does so in such a way that they have plenty of warning, so there are no surprises. Most who are asked to leave do so on good terms, with a full understanding as to why. In fact, some customers who have been asked to leave have actually continued sending referrals.
Most hosts don't need a system of automated warnings to motivate their clients to be respectful of support. They can easily remember which clients are causing problems, and deal with them accordingly.
Seriously guys, it doesn't have to be ugly and you don't have to go on a power-trip. Recognize that your customers are trying to run a business too, and most simply don't understand what is or is not included with your service. The internet is a scary place for them, and they look to you for help. (Like the ones who think you are supposed to help them fix their home internet connection and everything else internet-related.)
On the outside they may seem demanding, but in truth, they really just don't know what they are doing, and they don't know who else to turn to. They just want you to be fair (give them plenty of warning and opportunities to be less annoying), and they want to know WHY you are taking the actions you take. If I could add an 80/20 rule, it would be that 20% more professionalism increases your profitability and your employee morale by 80%.eVerity.com
Celebrating 9 years of customer service. Domain names, shared/semi-dedicated/dedicated hosting, SSL certificates, merchant accounts, reseller options, and referral program, since July 2000.
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11-29-2006, 08:37 PM #14Web Hosting Guru
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Originally Posted by jerett
I don't think making a move like that will help your business grow at all. Just my opinion.
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11-29-2006, 11:12 PM #15Web Hosting Master
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Originally Posted by everityJay Sudowski // Handy Networks LLC // Co-Founder & CTO
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11-30-2006, 12:11 AM #16Web Hosting Master
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80% of WHT users have no clue while 20% of WHT users really know their craft and i'm neither.
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11-30-2006, 04:36 AM #17Web Hosting Master
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Originally Posted by Jay Suds
The main points are (based on my experience)
1) There really are customers that you need to get rid of
2) There are easy (for smaller hosts) and fair ways to determine who they are
3) You can make them leave happy if you are diplomatic about it, and if you are open about the reasons.
I would once have agreed that you need to keep all customers, and that the complainers help you find your weak links, but after you've been in business a while you get a pretty good handle for where you are weak, you make the improvements, and you realize that some people are just going to use up all your resources and kill your morale in exchange for absolutely nothing.
There are plenty of "cheap" hosts out there who are desperate to give away everything for nothing until they go belly up. Likewise, there are plenty of cheap customers out there who want everything for nothing until they've bankrupted their hosts. (that isn't their intent, of course, its just that due to so many false promises in this industry they really believe that you should be able to give them everything for nothing.)eVerity.com
Celebrating 9 years of customer service. Domain names, shared/semi-dedicated/dedicated hosting, SSL certificates, merchant accounts, reseller options, and referral program, since July 2000.
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12-01-2006, 01:15 AM #18Business Owner
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Hi!
Your problem is a bit hard. It seems that your select clients are eating most of your support services. For this so called "problem customers", you may want to build an faq that answers of their concerns so that you save on repeated answering them just in case.
Also, if you cannot handle them anymore, you cannot just drop them. You may want to suggest another host? (Just a crazy idea). In our case, one of our clients is already using a lot of hosting resources. What we did is to refer them to our upstream provider. The result? Client is happy because he pays less for more now plus he gets direct support from our upstream provider. For our part, we had our server "deloaded". Although we lost a little income, we are happy to be relieved from the "stress".
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12-01-2006, 02:21 AM #19Web Hosting Master
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So 20% of customers are problematic, but does that mean that you should focus on the 80% and let the 20% flounder?
When I still worked fulltime for my GSP, we had a customer (actually hes still with the company) that called support like it was his job. Every day he seemed to have a question then would stay on the line just to chat.
We kept him around, slowly he worked though his problems, and started only calling once a week. During that time however, he was SO impressed with our support that he went on a crusade to spread the word.
In the $2000 support cost V 1000$ revenue example what seems to be missing is the 3000$ of new customers your "problematic" clients brought in.
If you are going to offer support, I belive it needs to be full support. If your not going to offer full support, then I believe it needs to be made clear "our prices are lower because we do not offer advanced support"Jordan Jacobs | VP, Products|SingleHop| JJ @SingleHop.com
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12-01-2006, 04:30 AM #20Junior Guru Wannabe
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Originally Posted by Gnax|Jordan
Just like I've said the ones using most of the support will be the ones making the most noise. Besides if you have dedicated support personal and didn't have those 20% of support hungry users, what would your support staff have to do all day. It's better paying them and have them do a great job than have them sitting around doing nothing.The most effective way to host your site
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12-01-2006, 09:47 AM #21Junior Guru
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In both of our brands, I can clearly see the 80/20 rule, and it's funny that you mention this because I had been thinking about it not so long ago. I have a long history in the sales profession, and the same rule comes into play each and every day.
But like I started to say, both in our MBLicenses brand, and in our hosting brand there is a clear line with the ~20% of clients that request the most support. In our hosting - I'll be honest, we raised prices on these clients in order to justify the added support they required. I'll gladly support them, but they need to pay for it. The "majority" of clients understand this, and as long as we are providing the service and support they need, while helping them stay profitable - it all works out.
Some of those customers see a small increase, and jump ship. I don't take clients for granted, but I'm ok with losing a client vs. losing money each and every month with them, or not being able to support them as they should be due to the amount of support they require.
In my experience, the 80/20 rule also depends on the market that you are going after. If you are in budget hosting with a high turnover rate, that 20% client figure might be much higher. If you are offering higher end hosting, you are able to justify spending more time with each client, and this type of client will often times need much less support anyways. So you might be seeing that "problem 20%" drop down to 5%.
Good post though.
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12-01-2006, 08:28 PM #22Nerf Herder
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Originally Posted by Jay SudsLike passive recurring revenue you can retire on?
You focus on building your brand, we handle all support, billing, and more.
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12-01-2006, 08:36 PM #23Aspiring Evangelist
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20% customer use 80% resources.
Actually I believe less than 10% customer use that much resources.
That's why cheap $9.9 buy plan like 50GB space & 500GB bandwidth.
80/20 was driven to 90/10 or 99/1.
Number is not key, just a concept.
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12-04-2006, 08:59 PM #24Web Hosting Guru
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Interesting discussion guys, thanks.
I like the company I host with, and after 12 years on the Net I know for a fact they are above average in terms of support. They're a big well known company with their own data center etc.
I recently tried to buy priority support from them.
I'm not looking for any support outside of ensuring that the services I've purchased are always up and running to the greatest degree humanly possible.
I did this because a new business I'm launching will require the best support they are capable of. I'm trying to be reasonable and understand that hosting prices are based on an average of all clients, and I want above average service. I understand that buying extra support will SAVE me money, not cost me money.
No deal, they're not interested.
They understand that different clients have different technical needs, and thus offer a range of technical services.
They seem not to understand that clients also have a range of support needs. Everybody from grandma's hobby site to Mr. Business with 9 servers, all routed through the same support system. And this is an experienced host with 15,000 clients.
So, they consistently provide me with above average support, but won't sell me true professional level quality support at any price. In 12 years on the Net I've yet to find any host who actually sells this service.
Some clients expect way too much, no doubt.
But some, perhaps the 20%, are perfectly willing to pay extra for extra. The problem is finding someone who will actually do it, not just say they will do it.
Anyway, another angle to this thread perhaps.
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12-05-2006, 10:02 AM #25Web Hosting Master
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Good point, dog. It sounds like in this insudtry the companies self-sort based on service. If you want the kind of hands on service you're looking for, you'll need to go to managed hosting like Rackspace.