Thursday, December 1, 2011

80/20 Marketing: Fun with Numbers

Are you familiar with the 80/20 Rule, also known as the Law of the Vital Few, and the Pareto Principle?

It holds that roughly 80% of results come from 20% of causes. In almost every area of life (and business), a small input produces a very large output.

The ratio is rarely 80/20 exactly -- it may be 92/8 … 78/22 … 85/15 -- but it is always disproportionate.

According to Wikipedia:
Business-management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.
It's a spooky natural law that always works, but doesn't make any logical sense.

  • about 20% of your clothes get worn 80% of the time
  • about 20% of your carpet gets 80% of the foot traffic
  • and about 20% of bugs cause 80% of software crashes (at Microsoft, anyway)

On and on it goes -- a large majority of results comes from a small minority of causes, in a ratio of about 80/20. In any business, including yours, about:
  • 80% of your profits come from 20% of your customers
  • 80% of your complaints come from 20% of your customers
  • 80% of your profits come from 20% of your marketing activities
That last figure is important.

Because, if 20% of your marketing produces 80% of your profits, then 80% of your promotional efforts produce only 20% of your profits. In other words, 4/5 of your efforts are largely a waste of time.


Therefore, there's an easy route to dramatically higher profits: Spend more time, money, and effort on your most effective marketing methods -- the 20% of your marketing that's producing 80% of profits.

Imagine if you could double up on your vital few 20% marketing efforts. You would get 160% of your current revenue. But ...where do you find the extra time, money, and effort to do this?

In a word, replace.

Simply replace some of the time, money, and effort you're spending on low-value 80% marketing with high-value 20% marketing.

Example: Let's say you spend 10 hours a week marketing your business, and 40 hours a week in operations. (Yes, that's 50 hours a week -- most entrepreneurs I know work at least that much.)

And let's say that, after careful analysis, you find that only 2 of 10 hours spent marketing -- 20% -- are highly profitable. Turns out, those 2 high-value hours are spent attending a single weekly networking meeting, where you get 80% of your business.

The remaining 8 hours a week you devote to marketing are on low-value (for you) activities like Twitter, writing articles for ezines, and answering email.

So, try this: "Steal" 2 of those low-value 8 hours and replace them with high-value networking.

  • find one more valuable networking group ... 
  • spend an extra 2 hours being useful to the people in your current networking group ... 
  • start your own networking group
Whatever you decide, any time, money, or effort you can redeploy from low- to high-value activities is like an investment that's almost guaranteed to deliver higher profits from the same hours worked each week.

Try it for yourself and see.

Bio: Kevin Donlin can help you grow your business and enjoy the breakthrough results your hard work deserves. If you're interested in boosting your revenues and profits, please click here.

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