80 20 Rule Marketing

The 80 20 rule in business may sound like marketing jargon but it’s very real and can be applied to many aspects of life and business.

First observed by Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; Pareto developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.

He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution of wealth applied around the world.

So in business and marketing it is observed that:

• 80% of a company’s profits come from 20% of its customers
• 80% of a company’s complaints come from 20% of its customers
• 80% of a company’s profits come from 20% of the time its staff spend
• 80% of a company’s sales come from 20% of its products
• 80% of a company’s sales are made by 20% of its sales staff

Have a think about your business and your customers and see if this fits… If you can identify the 20% of your customers that bring 80% of your profit then you have some very valuable marketing information.

Profile your best customers in order to find more just like them. What are the similarities, what links them? It could be a multitude of things so start making lists, notes and observations now and you could find the pot of gold at the end of the rainbow.

Remember though, it’s not all about the money they spend. It could be the easiest to deal with, those that repeat order without being prompted or those that just buy every new product you offer them.

Good information lets you apply dramatic improvements in profitability by focusing on the most effective areas and eliminating, ignoring, automating, delegating or retraining the rest, as appropriate.

The richest 20% of the worlds population own 82.70% of the worlds wealth… Probably because they understood the 80 20 rule and applied it to their business!

If you’re a large retailer or have hundreds or thousands of customers, it may be difficult to identify your top 20% exactly. However, if you think of a profile for that 20% like: age, profession, location, gender etc you can get a pretty good profile of who you should be targeting.

Alternatively you could think about products or services; chances are the same rule applies here. 80% of your profit comes from 20% of your products…

So now you know which products/services you should be allocating more of your marketing budget to. And, with a good customer profile, you should know who you’re trying to reach.

Should you ditch 80% of your customers?

Well that’s completely up to you, I wouldn’t  suggest you just stop doing business with them but if you think about the 80 20 rule… Then you probably spend 80% of your time dealing with the customers that only bring you 20% of your profit.

If you can change the way you deal with these customers, maybe put systems into place that allow you to spend less time with them. Then you have more time to attract customers that fit your top 20% profile.

How can you attract more customers like your top 20%?

Your marketing material should be tailored to suit these people, stop trying to please all the people all of the time.

If you write, design and build your website and ad campaigns specifically aimed towards your best profiles or promoting your best products / services then naturally, you should win more of that type of business.

Same applies to your advertising, social media, email campaigns. Promote your best products first to the best customer profile, finding media and writing content that fits that profile could be the best move you ever make.

Imagine the results in 6 or 12 months if you spent no more than usual but the customers you attract all fit your top 20% profile. Your business would change unrecognisably and you would have to sit down and create new profiles to find your new top 20%. Chances are your products and / or services may also change to accommodate the needs of your new customer base.

Here’s a little tip that I give to some clients, and although it’s not got much to do with the 80/20 rule it can help when you’re customer base is changing or you’d like it to change.

Try stocking or adding a product or service that’s better or higher priced than all your others, and just outside the price range of even your best spending customers. It creates a sense of desire, most of us want things we can’t afford right.

As your customer base changes, you might find more people actually buying the better products. Then you’ll have to find something else just that little bit better and so on, and so on.

So now you’ve read this, why don’t you sit down and identify either your best clients/customers by name or by a profile. Anything you can think of that is common among them. It could be:

• Age range
• Gender
• Location
• Profession
• Income bracket (you might have to guess based on profession)
• Industry (if it’s business then size or turnover instead of Income)
• Personality types
• Hobbies and interests

I’m sure you get the point, the more information you can collect, the better the results will be. You can start fairly broad but if you make it a habit to collect information you will find some great connections in time.

This exercise is all really valuable for creating Facebook Audiences, it’s essentially a customer Avatar that allows you to create Custom Audiences to test Ads on.

In time you will have enough knowledge about your customers that you could even break down further into segments, but more about this in another article.

Next think about your products and services. Make a list of those that give you the best profit margin but still have a good demand. It’s no good having products with huge margin but never sell.

The exception here might be products with lower margins but minimal time or investment needed to sell, again demand should be high to make it worthwhile.

Hey presto… You now have a list of products and services that you should concentrate your marketing efforts on. And you know what type of clients to target, now all you need is to find a way to reach that target market to offer them your best products.

Good luck…

Simon Harrup