The Pareto principle.
80% of your sales
come from 20% of
your customers.
The explanation starts with Vilfredo Pareto, an Italian
economist and political sociologist who lived from 1848 to
1923. He devised the law of the ‘trivial many and the critical
few’, better known as Pareto’s Law, or the 80:20 rule.
This rule says that, in many business activities, 80% of the
potential value can be achieved from just 20% of the effort,
and that one can spend the remaining 80% of effort for
relatively little return.The 80/20 rule pops up all the time.
And for good reason. It works. If you really take the time to analyse your customer or client base, you will find that 20% of them are generating 80% of your revenue. And the other 80% are costing you way more than they’re worth in terms of effort and expense.
So what’s the solution?
You need to really dig into that 20% and find out why they keep coming back to you. Because they are the answer to growing your business with only low cost, high return, premium customers.
Doesn’t it make sense to only go after those customers or clients that represent maximum value to your business? Rather than just throwing out a big net and trying to grab everything you can get?
If you really want to cut costs in a tough economy, don’t cut employees. Cut the customers that cost you more than they are worth. And only go after the people that represent maximum value.
This will either cut your marketing costs dramatically because you aren’t casting such a wide net, or it will increase your revenues more dramatically because you’re using the same amount of marketing money to go after the premium customers or clients.
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