5 Ways to apply the Pareto Principle in Common Sense Marketing by:Jim Newell
There has to be a reason that some part of a business does better than other parts
, why some employees are more productive than others, why some sports team dominate their sports etc. There really is a logical explanation, and once you understand what it is and how it works, your business in fact your life will never be the same.
The Pareto Principle, or sometimes referred to as the 80-20 rule, applies to almost every facet of business operation, every management function, in fact it is applied to and holds pretty much true to almost anything in life.
The rule was developed from observations made in the early 1900's by Vilfredo Pareto who had an engineering degree, was an economics lecturer and philosopher in Italy and Switzerland. His 1906 observation was that 80 percent of the property and wealth in Italy were held and controlled by only 20 percent of the population. He also observed that 20 percent of the pea pods in his garden produced 80 percent of the crop. The names Pareto Principle or 80-20 rule were not coined by Pareto but actually credited to him by noted management expert Joseph M. Juran and others who became familiar with Pareto's work and observations and determined that they could be applied to almost any problem or procedure and seem to always work out to the 80/20 ratio.
1) 80 percent of your profits will come from 20 percent of your products or services. The key is to identify which of those products and services are in the top 20 percent. Those are the products you never want to be out of, those are the services you want to continually improve on or expand. These services and products are the ones you want to advertise the most heavily. You will want to be sure which of the remaining 80 percent of your products and services are really needed and that they support the top 20 percent.
2) 80 percent of your sales will come from 20 percent of your customers. After you have identified which of those customers are in the top 20 percent, they are the ones you want to be sure are always catered to, they are always made aware of specials and new products, that they are always given to opportunity to become repeat customers. These are the ones you want to solicit testimonials from.
3) 80 percent of complaints will be generated by about the same 20 percent of problems. Tracking your complaints will allow you to see and focus on the specific problems and areas that generate the most complaints. Finding those specific problems will allow you to identify and fix them. Of course you should never stop tracking complaints, because as soon as you fix one another will take its place.
4) 80 percent of your successful campaigns will come from only 20 percent of your advertising. Identify your successful campaigns and duplicate or build on them. Use similar delivery methods for your message; some will work better than others with a particular audience. Knowing which methods and campaigns actually work will save o lot of money in your advertising budget.
5) 20 percent of your sales force will produce 80 percent of your sales. Nurture, grow and reward that top 20 percent, they are the superstars who will make your business successful. One of the attributes you will find in this group is that they will be the self starters who will always find a way to get the business. This will allow you to put more resources into developing the other 80 percent.
As stated earlier, the Pareto Principle or 80-20 rules works almost anyplace you apply it, the percentages will not always add up to 100 percent, however the ratio will be very close. The 80-20 rule works with online as well as "brick & mortar" businesses. This is truly a Common Sense Marketing tool that you should make part of your decision making and evaluating arsenal.
About the author
Jim Newell is the publisher of
http://www.CommonSenseMarketer.com a marketing resource for "Brick & Mortar" as well as online businesses. "No Hype - No Spin, Just What Really Works" Jim also publishes the bi-weekly CommonSenseMarketer newsletter, to subscribe to your own personal copy, and to find more Common Sense Marketing tools, visit
http://www.CommonSenseMarketer.com
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