How Pareto’s Principle the 80/20 rule can raise your profits by 80% | Everyday Power
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How Pareto’s Principle the 80/20 rule can raise your profits by 80%

paretos principle 80-20 rule

Vilfredo Pareto, an Italian economist, discovered what we now call “Pareto’s Principle” in the year 1906. He observed that 80% of Italy’s wealth belonged to only 20% of the populace. Since then, Pareto’s Principle has been found to show up in statistics across the board: business, finance, health statistics, wealth distribution, and even overall success in life.

How Pareto’s Principle will help

This article was written with the intent to help you understand and utilize the 80/20 rule in your business and in your life. Used correctly, it can be a very powerful tool to have at your fingertips.

 

So, what is the 80/20 Rule?

Generally speaking, it is the concept that 80% of your results (desired or undesired) will come from 20% of someone or something’s action. For example, 80% of your greatest output is usually generated by 20% of your employees. On the flip side, 20% of your customers most likely generate 80% of your revenue.

paretos principle 80-20 rule

Applying Pareto’s Principle to Sales and Marketing

Applying the 80/20 rule to your sales and marketing strategy is a surefire way to increase brand image, exposure to the public and total revenue. So how should you go about it? The answer is simple.

Market segmentation and analysis.

Both market segmentation and analysis can be done through a series of mass questionnaires sent through your email system, demographic analysis, psychographic analysis and research to examine behaviors particular to your customers.

Let’s delve a little deeper into each category:

Questionnaires

Utilizing your company’s email list (hopefully you’ve built one up over the years or just started, if not, it’s time to get a list going) you can send a mass questionnaire asking things that will help you get to know your customer base on an intimate level. You might want to find out their likes and dislikes, their favorite things about your brand or company, maybe even their least favorite things about your brand. If you are having trouble with coming up with useful questions, check out this awesome list.

Click Tracking Software

Click tracking is a highly effective way to figure out what interests your target clients. It will help you visualize where your visitors click and what type of content they will most likely be drawn to. It enables you to monitor, analyze and track customer decisions and find out which of your landing pages has the highest converts. Software worth looking into is Clickmeter, Crazyegg, and CPV Lab. Make sure to do your homework. Avoid using spammy trackers which could alert ISP’s.

Demographic Analysis

Utilize statistics surrounding your chosen demographic. You can do this by conducting your own research, government and state level statistics, demographics by subject, computer behavior, religious affiliation, etc. There are no limits when it comes to a demographic analysis. Just remember to ask yourself questions that are relevant to your brand and your goal.

Psychographic Analysis

This segment of research examines your customer’s values, interests, personality traits, attitudes and opinions. Using psychographic analysis is a great way to create a picture and profile of your typical customer. This gives you a feel for what makes your target client tick and will help you put yourself into their shoes when conducting marketing strategies.

GIS (Geographic Information System)

A GIS is a system used to seize, influence, store, manage, evaluate and present all types of spatial/geographical data. GIS is essential to any marketing scheme and it’s also essential for businesses and private entities. It’s used in a number of sectors including crime analysis, prescription medication studies, demographic studies and more.

 

Malcolm Gladwell’s “The Tipping Point: How Little Things Can Make a Big Difference”

One book that flows with the idea of Pareto’s Principle (though it doesn’t ever actually name it) is Malcolm Gladwell’s “The Tipping Point”. The Tipping Point highlights a series of phenomenon (which he named the book after) where the minority is often the creator of the majority.

He often writes about the fact that there is a small group of primary individuals who make the majority of social changes, trends, and movements happen.

In a business setting, he makes note of several major companies who employed the Tipping Point by actively seeking out the minority who start a majority of movements.

“There are exceptional people out there who are capable of starting epidemics. All you have to do is find them.”

So who might these “exceptional people” be?

They are the 20%. The ones who influence 80% of major outcomes. They might be your employees or they might be your customers. Either way, they are movers and shakers, and they are the key to accessing 80% of your unrealized revenue potential.

If you are able to identify these people within your niche, whether that’s through research and analysis or word of mouth, take the opportunity to reach out to them. They might just be the difference between “getting by” or watching your business grow and exceed expectations beyond what you ever thought was possible.

 

People are the key to your success. Software and strategy and analysis can only get you so far, but without the right mix of people your business will stagnate and eventually sink. Focus on the 20% of your employees and customers that keep your company going. Reward them. Build relationships with them. And above all, do not take them for granted. They’re the gatekeepers to your success, and so should be treated with the utmost care and respect.

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