No doubt you’ve heard of the 80/20 rule but do you fully understand its power to take your business to the next level? The origin of this principle is attributed to Italian economist Vilfredo Pareto who in 1906 observed that 80% of the land in Italy was owned by 20% of the population. When adopted by business experts, this principle held that 80% of a firm’s revenue was achieved by only 20% of its customers.

No matter what business you’re in, Pareto’s Principle can help you focus on the right customers, find ways to retain them and, in general, make better business decisions. Put it to work in your enterprise by:Analyzing your sales data to identify your best customers…

  • Pull a list of your current customers with their associated revenue year-to-date; and look at the top 80% of total revenue. The people tied to these transactions are your best customers;what percent of your total customer base do they represent? The answer should be 20% (or near enough!
  • What are they buying and how can you get them to buy more? Is there an enhancement to or customization of an existing product that would drive more sales from this segment?
  • Dig a little more: Look at your 2013 net revenue and identify the customers who brought in   80% of your sales. If the resulting top 20% of customers are not buying from you today (or in lesser dollar volume), these are the people you also need to focus on. Talk to them to find out why they are not in this year’s top 20%.
  • Retaining and rewarding your best customers…
  • Get off the fence and invest in creating a loyalty or referral program because the 20% are the ones most likely to recommend you to family and friends.
  • Learn everything you can about these customers: Do they buy only at a certain time of year; or at a certain frequency such as bi-weekly, monthly or quarterly? With this information, does your promotional schedule align with their buying behavior?
  • Send this group product samples to pass along to friends.
  • Consider offering to customize a product for them at regular price.  Such superior customer service like this would spark a conversation with family and friends. (Don’t be afraid to come right out and ask them to refer your business to others.)
Here’s a short running list of things you can do to not only keep these customers but get them to refer a friend:
  • Offer free shipping with no minimum purchase.
  • Send a special gift or shopping discount on their birthday.
  • Extend a free consultation in your field of expertise.
  • Discover their pain point. If outside of your expertise, find a solution for them.
  • Sell a new product to them at near cost and sell to everyone else at a higher margin.
Eliminating the waste of time and money on the least productive segment of your database…
Advertisers and marketers live and die by calculating their return on investment of marketing dollars campaign by campaign. At the very least you should have an aggregate figure: Determine your total spend on advertising this year.  Divide it by the total number of people reached in your campaigns. If you’re spending much more to advertise to a segment of your database than what they are spending on your products, then clearly, they are not worthy of your time or money.
Don’t fly in the face of your sales data. Become thoroughly comfortable with your numbers; study the 80/20 rule; and learn the calculations of your return on investment (ROI).