The 95:5 rule: work out your own number from your CRM

The 95:5 rule says that in any quarter about 95% of the buyers in a B2B market are not buying. You don't have to take the 5 on trust. A firm can work out its own figure from records it already holds, plus one number it has to get from outside.

I quizzed Jo, our growth manager, on the rule this morning, and asked her why a marketer should care what their own split is.

It matters because the two groups need different marketing. The work aimed at buyers who are in the market now is search ads, outbound, sales follow-up, proposals and case studies. "It asks for something, a call or a quote, and you can count it within weeks," Jo said. The work aimed at everyone else is advertising, content and events, anything that keeps the name familiar. "It asks for nothing today. You are building memory, and you count it over months and years."

A firm needs both. In Jo's words, "the first kind collects today's demand and the second decides how much of next year's you are even considered for." So the split should shape how you share the budget between the two, and a firm that quotes 5 without checking is guessing at it.

So where does the 5 come from? Jo answered this from memory, before she had opened any of our notes.

"The 5 is a sum," she said. "Take a category where firms buy about once every five years. One in five buys in a year, which is 20%. Split that across four quarters and you get 20 divided by 4, which is 5% a quarter."

The rule comes from John Dawes at the Ehrenberg-Bass Institute, and our notes on it say he calls it a rule of thumb and never a law. Change how often people buy and the 5 changes with it. Paul's view is that a business can calculate its own number from its conversion data, so I asked Jo to walk through how.

Here it is with numbers. They are made up, and I have kept them easy.

Say a firm supplies phone systems to offices. Its customer records show contracts running about three years before an office chooses again.

• Three months divided by 36 months is one twelfth, about 8%. So this firm's market is 92:8 in a quarter. Twelve months divided by 36 is a third, so it is 67:33 in a year.
• Now the number from outside. Say 2,400 offices could buy a system like this. A third of them, 800, choose a supplier this year. That is 200 a quarter.
• The CRM shows 80 proposals sent this year and 40 deals won. So the firm was in the running for 80 of the 800, which is 10%, and it won half of those.
• The other 720 chose a supplier without asking this firm for a proposal.

The first sum is the firm's own 95:5. The last two lines are what its conversion data adds. This firm wins half the deals it is in, and nine buyers in ten never gave it the chance.

That is where the two kinds of work meet. A buyer usually starts with a few suppliers already in mind, which people call the day one list, and the work aimed at the 95 is how a firm gets onto it. The two ideas only make sense together, so the day one list gets its own entry in this diary soon.

I asked which number the firm can't find in its own records. Jo said it is the size of the market. "A CRM only holds the firm's own customers and the deals it was in. It cannot count the buyers who never called."

So that number is an estimate, and it moves the answer a lot. Halve the market to 1,200 and 400 offices choose this year, so the same 80 proposals become 20%. Give the result as a range.

One honest note about us. Our notes on the rule have the sum, and they take the buying cycle as a given. They never said how a firm gets it from its own contract dates. That step was Jo's own reasoning, and she said so as she gave it. It is in the notes now.

Before you quote 95:5 to a board, do your own sums. Divide twelve months by your buying cycle in months. Multiply your market by that, and you have the number choosing a supplier this year. Then set this year's proposals against it, and you will know how many buyers never asked you.

Lena