I started this thread to see how many other Internet Marketers subscribe to (or are aware of) the idea behind the 8-20 rule, where it applies to marketing--AND--whether or not it worked for, or applied to your business. Have you ever heard of the "Pareto Principle"? If you haven't, imho, you are missing out on one of the MOST EFFECTIVE routes to bigger profits. Also known as "The Vital Few and Trivial Many Rule", the Pareto Principal was named after an Italian economist who observed in 1906 that 20% of the Italian population owned 80% of Italy's wealth. He then noticed that 20% of the pea pods in his garden owned 80% of his pea pod crop. Coincidence? Well, it got him thinking... Vilfredo Pareto applied this "80-20" rule to pretty much everything-- and weather or not you agree with it is everyone's prerogative. But when it comes to your e-business, you’re missing out on allot of profit if you don't realize that 20% of your customers are responsible for 80% of your sales. Agreed, that with other applications of the Pareto Principle, it's often impossible to determine the accuracy of the ratio (ie. 20% of the food you eat is responsible for 80% of your health). But in your e-business, you can easily track which customers are repeat customers. It's a little recognized fact that at least 20% of people who have purchased from you once will buy from you again if you follow up with them. One-fifth of your customer base is just waiting for you to offer them something new. So if you're not following your customers, you're actually ignoring 80% of the profit potential of your business. Any experiences with this "theory" that you might be able to take the time to share here will be greatly appreciated. Thanks Lilly
I have been aware of the 80-20 rule a long time. I don't think it applies at all in my experience on the web though. My wife an I had a discussion about it about two weeks ago and after looking at some stats, my own and others, we came up with a number of like less then 2% of the expected 20% if IIRC.
This is a good post, but I think most websites apply this 80-20 rule, knowingly or unknowingly. Heres an example how.. If I offer services on my site (say related to travel) and people come and book through my site, and I keep note of these customers and they also sign up my newsletter, I've got some of the more important people added to my opt-in list of subscribers. Now these people will lead to more sales/bookings when I send the newsletter next time.
Thank you kindly for your replies to my post. I agree 100% This 'rule' basically shows you that you can actually achieve more, with less. As it is an approximation, I believe that it should be interpreted carefully but, informally at least, it seems to hold true surprisingly often. Aside from the fact that the 80-20 Rule is one of the most helpful of all concepts of time and life management, I believe it’s also fundamental to every business person. This concept has caused me to resolve to spending more and more of my time working in those few areas that can really make a difference in my life and my work, and less and less time on lower value activities. From a business standpoint, in this age of relationship marketing it's important to focus our efforts on maintaining the loyalty of customers belonging to the 20% that drive most of our business, while spending less effort on the trivial other 80%. Why waste so much time, effort and energy trying to serve the 80percent of your customers that are generating only 20 percent of your business? I know this concept confuses allot of people. The great thing about the 80/20rule is that you don’t have to understand statistics apply it. The real trick is to know which 20% we need to do. This can be difficult to work out in advance, but feedback-driven evolutionary processes coupled with adept product ownership, vision and clever marketing strategies can bring the valuable 20% to light. Additionally, any services (or whatever other sphere you work in) you build and deploy are reusable, so this applies to services as well, imo. A service is clearly very reusable if there's a million service consumers out there making regular use of a certain service — which there ARE --and that is a good thing, to be sure. You might wonder whether this thesis is turning out to be true as we collect hard data from our business. So far, ( in the last 3 years) it's looking pretty dang close! Best, Lilly
There is a web spin-off of the 80/20 rule... I think it's called the 80/19/1 rule or something. 80% = the lurkers 19% = participants 1% = adopter/contributors Those aren't the original terms used, but that's the gist.
Do any of you have forums that have checked this. I have a polling site where members create the polls. Checking the stats I had 8% of my userbase visit over the past 48 hours, and those users were responsible for almost 50% of the total pages views. Keeping your members/customers happy has got to be key!
There's so many ways to use the Pareto principle. Here's one I got from reading a great ppc adwords book. Focus 80% of your ad dollars on the 20% of the keywords that convert instead of spreading it out. And there's more... Focus 80% on your best talent and outsource the rest. Focus 80% on marketing, 20% on technical stuff. etc. etc. It's great way to improve anything in your life.
There's a lot to be said with this... I'd be cautious not to over-analyze, looking for the 80-20, but have seen an awful lot in the real world that affirms the Pareto principal. Regarding internet sites, I'd agree there as well... probably 20% of your visitors generate 80% of your page views (holds true for me). There's so much out there that it is not possible to appeal to the majority... 80% will disappear, the 20% will actively view material...
Good principle, Lilly, almost all marketers & salespeople live & die by the 80/20. Interestingly enough, the affiliate marketing channel for most companies applies about a 95/5 rule. 95% of business is performed by 5% of their affiliates. Reason being is simple - website traffic is logarithmic. Anyways... Yes, great summary of the 80/20 rule. Cheers, Dave Cole Executive Editor | AffiliatePrograms.com
Thanks for all your interesting posts! I also wanted to pose this question because I believe that sending follow-up promotions is one of the single most overlooked part of any online business (I've noticed in my online 'tavels' and relationship marketing research). People who use this technique are consistantly able to generate about 30% more revenue from follow-up promotions and it takes hardly any work at all! Essentially, what this rule means to following up, as I mentioned before, is that a significant percentage of your customers are just waiting for you to sell them additional products or services. Of course, they aren't going to call you up and ask what they can buy, so it's up to us to contact them with compelling follow-up offers. There are a number of ways that I follow up with clients and customers. I contact them shortly after a purchase, on the anniversary of a purchase, or follow up to see if have any questions they need answered, or to offer them an add-on or upgrade to thier purchase; and so on ... Now, all of this following up will be incredibly time consuming-- unless you figgure out a clever way to automate the process. We use MailLoop 6 to put our follow-up campaigns on autopilot using auto personalized responders. Once you learn how these work, you'll wonder how your business functioned without them IMO. I wonder how many here, do spend signifcant time following up with the 20% of their subscribers who bring them repeat sales? It's too late to start a poll here, but any comments, for the sake of my 'studies', will again be appreciated. I did not know that. Thanks for the interesting info, Dave Best, Lilly
The 80/20 rule says that a selected small fraction in terms of number almost always accounts for a large fraction in terms of effect. If you can identify which 20 percent produces the much larger effect, then you can take steps that focus on that 20 percent and benefit from the much larger effect that the 20 percent produces.