How does the 80/20 rule apply to marketing? (Pareto Principle)

Also known as the ‘Rule of 80 / 20’, at StrategicMarketingPartner.com we are huge fans of the Pareto Principle.

If you aren’t familiar with this rule, it says:

80% of your results come from 20% of your activities.

This is especially true for sales and marketing activities.

But the opposite is true, too.

20% of your results come from 80% of your activities.

So, where does it make most sense to focus your efforts?

Focus on the 20% activities, of course.

Identifying those high value 20% activities can be the hard part. But it doesn’t have to be.

What is the 80/20 rule in sales and marketing?

Recently, our team started working with a wonderful nationwide service provider. Part of their team was an excellent SEO firm. Like many in this space, this SEO firm is filled with IT experts, SEO, PPC, designers, programmers and the like -- each focused on their nitty gritty, specific, tactical specializations.

And for many in this space, the Rule of 80 / 20 is a tough concept to grasp.

As part of Your Strategic Marketing Partner’s scope of work for Website Marketing and Online Advertising projects is to drive traffic and increase conversion rates, thereby increasing sales.

For many very busy company owners and founders, who just want results, they don’t fully understand the techno-speak coming from well-meaning SEO firms, let alone web designers. They just know they want it and leave it up to the experts to make it happen.

But when left unchecked, many SEO firms can get overly caught up in tasks that can be categorized as “too deep in the weeds” and lose the overall big picture of why they are being paid.

And this is exactly what happened here.

After a wonderful video conference call with key members of very talented this form, I listened to them for 30 minutes reporting the tasks they were doing:

  • Keyword analysis
  • Industry research
  • Routine analytic review
  • 301 redirects
  • Website schemas
  • Reputation management
  • Backlink pruning
  • Link acquisition
  • Site audit inspection

All important activities. And they need to be done.

But are these 80% activities or are they 20% activities?

No, they are not.

If the goal is to ramp up sales and marketing, these SEO activities are in the 80% of activities that create 20% of the results.

And to my shock, when I asked the team if they had heard of the rule of 80 / 20, they had not, even the senior members.

That’s when I told them that lead flow is a 20% activity that brings 80% of the results so the company can continue to pay for and maintain an SEO firm. I then asked them to make a list of the absolutely most important activities in their Scope of Work that will increase lead flow today, not next year.

We came up with a handful of 20% action items that will create 80% of the sales and marketing results for this organization, such as:

  • Regularly updating Google My Business,
  • Testing new landing pages for lead flow,
  • Better use of customer testimonials, and
  • online advertising campaigns designed to target our ideal customer.

Taking nothing away from the before-mentioned SEO items, which will get done as time allows, now we are talking 20% action items that are responsible for 80% of the results.

Who defined the 80/20 rule and what does it actually mean?

An economist from Italy named Vilfredo Pareto (1848-1923) created a formula to better understand and describe why more money flowed to some people over others.(2) This formula was developed in 1906 and became known as the Pareto principle.

Think of the law of cause and effect here.

The Pareto principle says that approximately 80% of the effects come from just 20% of the causes. (1)

Pareto showed that approximately 80% of the land and wealth in Italy was owned by 20% of the population. (1)

Here are some other examples that are common in most businesses:

  1. 80% of your total sales revenue come from just 20% of your customers
  2. 80% of your sales revenue come from just 20% of your products
  3. 80% of your products return come from 20% of your customers
  4. 80% of your lead flow come from 20% of your advertising campaigns
  5. 80% of your sales come from 20% of your advertising sources

Pareto later discovered that almost all economic activity was subject to the Rule of 80 / 20.

How does the 80/20 rule apply to marketing? (example)

When the rule of 80 / 20 is applied to your marketing strategies, this alone will do more for your organization than any other thing you do.

Specifically, do you know who your best customers are? The ones that contribute the most value to your organization? Or, do you know who your customers are who ‘need to be sold’ on your value proposition?

By better knowing your customers -- beyond just the basic demographics such as where they live, how much they earn, male or female, and how much education they have -- you can craft better, more personalized messages that matter most to them.

Use this simple rule of 80 / 20 in your marketing strategy to increase sales 

One of the easiest methods for delivering more value to your customers and increasing sales is to segment your customers using the law of 80/20 (the Pareto principle).

That is, 80% of your sales come from 20% of your customers.

For example, if you have 10,000 customers, rank them by the amount of sales revenue each contributed to your organization.

Now break out the top 2,000 customers and save it in a file called: “My best customers”.

“The data” shows that these 2,000 customers love your brand more than everyone else - now it’s your job to give them more value. You could offer them a membership-style offer, a loyalty buyers club program, a special bulk quantity or a limited-time lowest-price-ever-offered deal.

By communicating to such a specific, high value segment, you will find that your costs will stay low, your customer engagement rates will skyrocket and your customers will be delighted to receive a special offer reserved for just them.

Your options are endless.

We invite you to also review Price’s Law for another astounding formula for productivity shared by a select few.

References:

  1. Applying the Pareto Principle in Your Marketing—the 80/20:  Rulehttps://extension.umd.edu/resource/applying-pareto-principle-your-marketing-8020-rule
  2. The Pareto principle: http://www.csun.edu/~jmotil/Pareto.pdf

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