The Pareto Principle: Why You Should Focus 80% of Your Marketing Efforts on ONLY 10% To 20% of Your Customers

 

 

It’s amazing how few businesses pay much attention at all to their existing customers – those who have actually bought something.

 

Some businesses don’t even keep a customer list!

 

But it’s the first sale that’s the toughest.

 

It’s much easier to make a sale to someone who has bought from you before than to someone who has never bought from you, and might never have heard of you.

 

The reasons are many and should be obvious.

 

Your customers bought from you because they like what you are selling.

 

They want what you are selling.

 

They need what you are selling.

 

Your customers would much rather continue to do business and buy from someone they know.

 

They would prefer not to buy from a stranger.

 

If your product is any good, selling your customers more of what you know they like should be like shooting fish in a barrel.

 

For these reasons, it’s far more costly to find a new customer that to keep an old one.

 

Your customers should be hearing from you all the time: a postal mailing once a month, an email communication at least once a week.

 

And not every communication should be a sales pitch.

 

Just give your customers a steady stream of valuable useful information.

 

If you’re selling tires, send your customers tips on how to stay safe on the road by rotating tires, maintaining the correct air pressure, and how to measure the tread.

 

Send objective information on what makes a safe tire.

 

With your communications, your goal is to build a relationship with your customers…because when you have a trusted relationship, you have no competition.

 

You will have customers who will faithfully buy from you.

 

 

Mining Gold from Your Customer List

 

 

You’ve heard about the Pareto “80/20 Rule”.

 

It’s called the Law of the Vital Few, or the Principle of Factor Sparsity.

 

The Rule says, for many events, roughly 80% of the effects come from 20% of the causes.

 

It’s such an important concept.

 

The “80/20 Rule” is part of Marketing 101.

 

The rule goes like this:

 

  • 80% of sales come from 20% of customers.

 

  • 80% of commissions are earned by 20% of salespeople.

 

  • 80% of the wealth in any community is produced by 20% of the people.

 

  • 80% of sales are generated by 20% of the businesses.

 

  • 80% of your income is produced by 20% of your activities.

 

  • 80% of your revenue is generated by 20% of your clients.

 

  • 80% of your donations are made by 20% of the donors.

 

 

The reason for this is fairly obvious.

 

If you observe human behavior, you’ll immediately notice that about 20 percent of the population is pulling the wagon – that is, doing about 80 percent of the work and generating 80 percent of the wealth.

 

Everyone else is riding the wagon, hoping someone else will pull them along.

 

The majority of people don’t have the guts or energy to start their own business.

 

Most people would rather ride along on someone else’s wagon, happy enough in their 9 to 5 job and collecting a regular paycheck every month, while doing as little as possible to earn it.

 

In the charitable arena, the rule is the same.

 

About 20 percent of the populations are givers.

 

The rest of the populations are takers.

 

Actually, the “80/20 Rule” is more like the “90/10 Rule” if we were to really analyze the facts carefully.

 

The 90/10 Principle popularized by Stephen Covey, the amazing author of “The 7 Habits of Highly Effective People” states that, 10% of life is made up of what happens to you, and 90% of life is decided by how you react.

 

Following this rule, if you were to break down the population even more precisely, you would see that the top 10 percent are the true producers and givers – the true wagon-pullers.

 

There’s a middle 60 percent who are happy to ride in the wagon most of the time, but will help out once in a while if they are shamed into it.

 

And then there’s the bottom 30 percent of the population who must be dragged behind the wagon in the dirt.

 

These are dead weights that actually hinder progress.

 

So now, let’s rename our Rule of Life the “30/60/10 Rule”, and it goes like:

 

  • 30% are dead weight you are pulling along in the dirt.

 

  • 60% are riding in the wagon, not doing much, but not hindering your progress either.

 

  • 10% are doing 90% of the pulling.

 

 

The #1 mistake businesses make is to focus too little attention on the 10 percent of customers who are providing 90 percent of your income – and too much attention on the rest who aren’t profitable for you at all, and, most likely, are costing you money.

 

The tendency is to take your best customers for granted.

 

“We don’t have to worry about these customers because they love us already,” is the thought process at work here.

 

We get lazy with these customers because we know these customers are profitable.  

 

We then invest enormous effort and resources to try to make our money-losing customers profitable.

 

We continue to send these money-losers newsletters and mailings.

 

We continue to coax, cajole, and bribe in the hope that these people will, someday, become interested in what we are doing.

 

We make the dead-weight money-losers the focus of our marketing.

 

What a catastrophic marketing mistake this is!

 

One of the quickest, easiest ways to increase your profitability is immediately to cut loose the 30 percent of the dead weight, the people (customers and employees) who are costing you money, and will never be profitable no matter what you do.

 

Just get rid of them and at least make your wagon lighter to pull.

 

Your next step is to give your top 10 percent or 20 percent a lot more tender loving care and to offer more and more of whatever it is that makes these gold-plated customers love you so much.

 

If they like chocolate, keep offering them bigger and bigger chocolates.

 

Don’t think, “He’s already had his chocolates for the month, so no need to offer him another chocolate until next month.”

 

Keep feeding your gold-plated top 10 percent of your customers more and more of what you know they love.

 

And treat them as the dear and loyal friends they are to you and your business – because you can’t survive and prosper without them.

 

But, why is it that most of us are so obsessed with trying to win over the bottom 30 percent?

 

Why is it that we are more concerned with trying to turn the deadweight we’re dragging along in the dirt into wagon-pullers?

 

I think it’s because entrepreneurs are also evangelists at heart.

 

We are so excited about whatever it is we are doing and the service we are offering that we just can’t believe most people could not care less about what we are doing.

 

We try to win them over.

 

We try even harder to win back our “lost sheep” – our former customers who left us.

 

We just can’t believe they left us even after all the great service we provided.

 

It’s depressing to lose a customer.

 

Rejection is always depressing.

 

So we spend a lot of money and effort trying to get these “lost sheep” and “prodigal children” back into the fold.

 

The reality is you will never turn a wagon-rider into a wagon-puller.

 

And you will never turn dead weight into wagon-riders, much less into wagon-pullers.

 

We are genetically wired to be who we are.

 

We were that way at birth.

 

You are far better off cutting loose the dead weight immediately.

 

In fact, you would be better off getting rid of most of your wagon riders.

 

They aren’t much good to you either.

 

Keep a few of the wagon riders around who show some potential of being wagon-pullers.

 

And then focus 80 percent of your efforts on your top 20 percent – your very best customers and clients.

 

Of course, you will always need to prospect for more customers.

 

You always need to find new prospects to pour into the top of your marketing funnel.

 

But you must do this knowing that only 20 percent (or less) of your new customers will ever be worth much to your business.

 

Can you see how clearly understanding this principle can affect, even dramatically change your marketing approach – and might even change your entire business model?

 

With this principle in mind, your job is not to work to turn your dead weight and wagon-riders into wagon-pullers for you, but to develop a system that will identify your wagon-pullers as quickly as possible so you can focus your attention on them.

 

Identify, cultivate, and harvest your wheat.

 

Quickly identify and burn the chaff.

 

And you will vastly increase your profitability.  

 

 

Let me know what new thing you learned from this topic in the comments section below.

2 comments on “The Pareto Principle: Why You Should Focus 80% of Your Marketing Efforts on ONLY 10% To 20% of Your Customers

  1. Hello Taofeeq, this is a really insightful topic. It actually called my attention to the fact that most of us are guilty of this, spending money, time and effort on lost customers or customers that do not show interest. It is in our best interest to remedy that

    • Sure, Haleemah.

      This is a common mistake marketers make out of their increased eagerness for everyone to benefit from their solutions of products and services.

      Although, maximum business and marketing resources should be focused and spent on those class of customers who actually produced them…

      Yet, we still need to reserve the remaining minimum efforts and resources to acquire whichever of the remaining percentage of leads and customers who are sitting on the fence, and could still be acquired with the minimum efforts and resources.

      I’m glad you enjoyed the post, Haleemah!

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