Using the Pareto Principle in Marketing

You are starting a Marketing plan or perhaps a sales process and have tried so many options but are realising that no matter how much effort you are putting into this only a small fraction of the people you are marketing are worth anything.  Believe it or not there is actually a name for that. It’s called the 80/20 rule or Pareto Principle and it is a way of looking at your profits and outcome of various marketing and sales attempts. But instead of looking at it as a bad thing you are looking at it as a positive and utilising all the information you can get from it and using it to your advantage for future Marketing attempts. If only few of the people you market to or your customers are making you money then you learn that you need to look after those customers. You then can find out what makes them all similar and what it is about those specific people that is making them profitable. Once you have figured out what makes them special or different from the others, use it to find other similar to them and eventually build up a database of profitable customers and get rid of those that aren’t making you any money.So back to the Pareto Principle, the principle states that on average 80 percent of your outcomes will come from only 20 percent of your effort. This means that no matter how much effort you put in only about 20 percent of it really counts. You then need to decide what 20 percent of your efforts are bringing in the 80 percent of outcomes and get rid of the rest. The 80/20 rule can also be applied to your profits and sales so for example 80 percent of your profits will come from 20 percent of your customers and 80 percent of your sales will come from 20 percent of your products or services. Find out what things are in those 20% and cut down on the rest. This will not only save money but it can be used to make more money when implemented into new marketing techniques.So the obvious conclusion here is that a small amount of your effort will provide a large amount of positive results and a large proportion will provide a small amount of positive the results. Once you have figured out which efforts are not as useful as others you can then target the useful efforts and gain more profitable customers.So what areas do you need to address to measure where your sales and profits are mainly coming from? Firstly measure sales per customer, how much profit each customer is making you, sales of your products and services, profitability of products and services, sales and profitability per channel to market such as direct sales and web sales. Once you have measured these you should come up with results that resemble the Pareto Principle and you can then start cutting out what isn’t helping you.