The 80/20 Rule of Marketing
In 1902 Italian economist Vilfredo Pareto noticed that 80% of Italy’s land was owned by 20% of the population. Interestingly enough, he also perceived that 20% of the pea pods he grew in his garden contained 80% of his peas. This (among other more complex factors and observations) led to his creation of a principle that tackles what is formally known as the specific power law distribution, or Pareto’s principle of the 80:20 Rule.
But how does, Pareto’s 80:20 Rule relate to marketing?
- 80% of your profits come from only 20% of your customers. - 80% of product sales come from 20% of your products - 80% of sales come from 20% of your sales team, and - 80% of your sales come from 20% of your advertising
Obviously the exact proportions will vary, but I think you can understand the relation. If you keep this in mind while you analyze the results of your marketing efforts, you can strategize how to channel your efforts into what drives most of the positive results for your business.
Using the 80:20 Rule as a guideline, determine which factors are the most influential for your business, or which should receive more attention based on an efficient use of your resources. In other words, zero in on the factors that have the most effect on your marketing results; for example, if 20% of your advertising comprises 80% of your sales, then analyze what that 20% is, why it works, and direct most of your effort into those areas that yield the highest results.
This can save you a lot of time and money when it comes to your marketing. Instead of spreading your efforts too thinly over a wide area of advertising, why not channel your efforts into the advertising that is proven to work, or which generates the majority of your profit? Similarly, if 20% of your customers generate 80% of your business, why not target your advertising to suit them, maintain their loyalty, and attract more good customers with similar characteristics?
Here are 4 ways to hone your marketing based on the 80:20 Rule:
1 – Pay attention to your customer lists. From your email distribution to your company’s Facebook page following you have a lot to learn about your customers’ attention span, their buying habits, and many other tidbits of information that will help you discover who purchases more frequently and who spends the most money. Analyze the data, gather more information, and focus on them.
2 – Study the geography. Find out where your best customers live. The odds are that people/businesses from certain neighbourhoods are driving most of your sales. Save money on online advertising and other forms of marketing by narrowing your target areas down to specific locations.
3 – Find your customers’ niches. Those who spend the most money in certain areas tend to fit into a specific demographic. Once you isolate that demographic, target them. Make a name for yourself in their circles, and they may even help by doing the networking for you among like-minded people.
4 – Rid yourself of problem customers. The 80:20 rule applies to thorns in our side as well. 80% of complaints come from only 20% of your customers. Stop chewing through chunks of time on the phone with the complainer, who costs you more money to service than he makes for you. Instead, direct your time towards the hassle-free, and often low-maintenance, big spenders.
It’s completely natural to want to pay attention to every customer, and utilize every marketing strategy. Doing a bit of everything is an admirable talent; however in marketing, and especially in relation to the 80:20 rule, it can mean that you are robbing yourself of the time and ability to do one thing really well. Focus on improving the advertising strategy that gets you the most results instead of casting your line into a variety of waters on the chance that a bigger fish might take the bait. This may feel counter-intuitive; but why waste your time trying to please all of your customers instead of catering to the most lucrative ones?