The 95:5 Rule and how it applies to business growth and increased profitability.

“Up to 95% of business clients are not in-market (or “ready to buy”) for many products 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 prospects who aren’t ready to buy yet.”

- Adapted from Prof. John Dawes of the Ehrenberg-Bass Institute for Marketing Science

The ratio of in-market to out-of-market customers in the previous example translates directly to being able to identify who’s ready to buy, and who's not ready to buy (but will be). 

The split roughly corresponds to the 95:5 rule—a fundamental law of marketing set out by Prof. John Dawes of the Ehrenberg-Bass Institute for Marketing Science, which states that the vast majority (95%) of customers are out-of-market, leaving only 5% who are ready to purchase at any given time.

However, during tougher economic times the demand can be skewed dramatically towards future buyers, so the 95:5 rule is then more like 99:1. Yet many businesses allocate most of their sales and marketing budget to chasing short-term Buy Now transactions.

The most successful long-term new business acquisition strategies successfully engage both groups - in-market and out-of-market prospects.

Target Present and Future Buyers

With 1-5% of your customers in-market at any time, it may be tempting to focus your marketing efforts solely on those ready to buy now—especially when the pressure to meet sales targets is greater than ever.

However, this approach means ignoring the much larger opportunity - the segment of future buyers – which is your most significant source of revenue and growth.

When buyers switch to being in-market, the B2B brands that are front-of-mind will be best placed to get the most sales. So instead of focusing solely on lead generation, businesses must also engage in effective brand-building with impactful messaging to build long-term demand.

Although targeting out-of-market customers may seem counterintuitive or even uncomfortable, it’s a proven model for securing mid-to-long-term sales revenues and growth.

In effect, marketing to the 95-99% makes it easier and more cost-effective to keep the short-term sales pipeline filled and active, so marketing efforts must target the whole market to drive growth and revenue in the long term.

Long-Term Mindsets for Growth

A McKinsey report into the effects of corporate ‘short-termism’ carried out between 2001-2014 found that firms with a long-term outlook grew revenues 47% higher than companies focused on short-term gains.

Sales-Led Marketing from Forge®

There will be no ‘new normal’. The socio-economical landscape is changing so rapidly that the world could have lived through more ‘new normals’ and ‘unprecedented’ events in the time it has taken to write and produce this content.

However, the basic principles of emotive long-term and rational short-term sales and marketing working in synergy to engage the whole market will hold true.

We Get Sales

While working with owner-managed and private equity-backed SMEs over the past two decades, we’ve lived with CEOs and sales teams through the challenges affecting every industry.

The Forge® team is uniquely positioned to understand how the right sales and marketing formula can help survive and thrive through the next five years, especially if you’re heading towards an exit.

Moving forward into the next five years and beyond, CEOs need support from a team that knows that the best marketing is really all about sales and is ready to campaign by your side until your marketing strategy is your business’s most significant single sales contributor.