There is a universal pattern to how the world operates and it is this: most things are not evenly distributed. For example, athletes are not gifted with equal talent, wealth is not evenly spread through the population, your carpeting is not evenly used (some parts see more traffic than others), and you probably eat more of some foods than others. From these examples, talent, wealth, usage, and consumption are not evenly distributed. Even the results from your marketing efforts are unevenly distributed. If you look closely, you will likely find that the lion’s share of your sales come from a minority of your activities.
Upon realizing this, how would you change your marketing to increase profits? Many people would erroneously conclude that they should work harder on the activities that produced the weakest results to bring them up to the same level as the more productive activities. However, this extra effort is wasted on activities that are relatively ineffective. If SEO brought in most of your sales, then put more effort there instead and reap far more sales with this added effort than you would have with your less effective marketing campaigns.
The 80-20 Rule
There is a name for this uneven distribution of things. It’s called the 80-20 rule or the Pareto Principle. There are many ways of stating this rule such as 80% of results come from 20% of causes, or 80% of outcomes come from 20% of inputs. One thing to note here is that this 80-20 split can vary. For some things it’s closer to 90-10, for others it’s 70-30. When measuring these distributions, make sure they’re based on a statistically significant sample size.
For example, when comparing the conversion rates of your different email list members, a test conducted over several months is more accurate than one that lasted a few days. Of course, once you have identified your best converting list members, it will be worth the extra effort of personalizing your emails to this select group. Ask them for input about products they would like to see or how you can improve your services. Give them the red carpet treatment.
Examples of the 80-20 Rule
Note that this rule is applicable to many things. Here are a few of them:
The 20% of Your Customers That Bring in 80% of Your Profits
Focus more effort on keeping these people satisfied with your products and services. Dedicate more of your customer service resources to them. Analyze their purchasing preferences and base your future promotions on this data. Customer personalization based on buying patterns has been criticized in the past because it’s often prohibitively expensive. While this may be true when treating all of your customers equally, it is a sound strategy when reserved for your most valued 20%.
The Top 20% of Locations That Bring 80% of Your Customers
Bring in more business from your advertising expenses and efforts. Direct more of your advertising money on the top 20% of locations that bring 80% of your customers. Focus your local SEO efforts on these locations as well.
The 20% of Your Products That Bring 80% of Your Profits
Prominently feature these best-selling products on your website and focus more of your marketing efforts on their promotion. The under promoted best sellers in particular will yield the highest return on your marketing.
Optimize the Top 20% of Your Web Pages That Bring 80% of Your Traffic
Split testing web pages to improve conversions demands work on your part. Put your limited time to better use by confining your optimization to the pages with the most traffic.
Direct Traffic to the Top Converting Web Pages
Direct traffic from your social media promotions, guest blogging, and other marketing efforts to the top performing 20%.
What Should You Do with the Other 80%?
Even though these are the lowest performing 80%, the 20% of the profits, customers, traffic, and conversions that they bring are significant numbers. If you are forced to make cuts in your marketing budget, then you can drop these low performers. However, you might consider dropping instead, the lowest 80% within this 80% (the bottom 64%) that account for 20% of 20% or 4% of your profits, customers, traffic, and conversions. However, if you aren’t cutting your marketing budget, then dedicate 20% of your marketing efforts to the lowest performing 80%.
If you haven’t been allocating more of your marketing to increase profits and bring the highest returns, you should see dramatic improvements after using the 80-20 rule. For more tips and information, contact us today.