The Pareto Principle & Your Customers
The Pareto Principle, or “80/20 Rule” is named after economist, engineer, sociologist and political scientist Vilfredo Pareto. He first recognized that 80% of wealth and land in Italy was held by 20% of the population. He researched data going back to the 1400’s and saw similar trends across Europe. Expanding his research he saw the same trend almost universally in industry and even some natural phenomena, with 80% of outcomes or consequences coming from 20% of the inputs or causes.
So what does this mean to us as marketers, business owners and entrepreneurs?
The 80/20 Rule applies to your business and your life: most people and companies spend 80% of their time, energy and resources focused on the 20% of people and things that give you 20% of the rewards, sales and revenues. In most businesses it doesn’t take a lot of datamining to find out that 80% of sales come from 20% of clients.
This means the purpose of your direct response marketing efforts should NOT be to bring in loads of new customers (“casting a wide net”). It is specifically to ELIMINATE as many people as possible who are not the enthusiastic, loyal customers you want. (For more on this topic see also Exclusionary Marketing)
Doesn’t it make more sense to flip the curve, and spend 80% of your time, energy and resources developing the 20% of your prospects and customers that deliver 80% of your results!?
Instead of wasting time “putting out fires” and “greasing the squeaky wheels,” it is important for a business owner to learn to fire them. Even better, to begin using your marketing message to repel them in the first place. The ones who aren’t squeaking, complaining, unhappy high-maintenance individuals are often the ones who impact your income the most. And learning to attract and connect with them — while excluding more of the ones you don’t want — is the key to success working smarter, not harder.
Better still, you will save money getting higher-quality leads, save time working with more Ideal Prospects, and generate higher revenues and more repeat sales and referrals in the process. Pareto would be proud!
