It really should be called the 20/80 rule, but that doesn’t have the same ring to it.
In case you haven’t heard of it, the 80/20 rule basically says that 20% of your customers will very likely be responsible for 80% of your sales. Equally notable (and very interesting), normally about 80% of your headaches and issues will come from 20% of your customers and clients.
It is also called the Pareto Principle, named after Italian economist Vilfredo Pareto, who noticed that 20% of the peapods in his garden produced 80% of the peas. After that revelation, he also noticed that 80% of the productive farmland in Italy was owned by 20% of the population. Since then, Pareto’s observation has been declared true (or at least probable) by many economic observers over time, so it’s become a kind of truism in business that 20% of your customer base will generate the lion’s share of your sales.
The reason behind the 80/20 rule is that it costs a lot of money, per customer, to catch a person’s attention and captivate them long enough to make a sale. There’s another common marketing principle—which is that you will probably only convince 5% of the people your marketing will reach to even look at your wares. And out of that 5%, well, your conversion factor depends entirely on the power and effectiveness of your message.
Why Return Business is So Profitable
So why is it that such a small percentage of your customer base generates the most income? It has everything to do with your faithful fan base.
If you make your customers happy, if they are satisfied, they will return again and again—without your having to spend as much money. You’ve already built a great website, you have great products, you’ve got a marketing program in place, and your staff is busy answering questions. That’s a huge investment that you hope will attract new users. But when a happy customer returns, they just want to order your product and get out the door. Boom.
Cultivating Brand Ambassadors
Take the example of a winery tasting room. A couple wanders in and tastes 8-10 wine samples. The wine attendant will probably spend an hour chatting them up. If they leave without buying, that’s a cost to you of a bottle of wine in samples, and an hour of employee time.
But if the couple signs up for email newsletters, then it’s only a monthly investment of maybe an hour or two of writing and graphic design to create a newsletter that might go out to hundreds or even thousands of people. And if some of those people sign up for the wine club, now they’re receiving monthly or quarterly shipments of your product. And now that they have plenty of your wine, they share it with friends and family, and they talk up your brand. Now you have brand ambassadors doing your marketing for you!
Really Understanding Your Customer Base
The key to conversion is really about knowing who your prospective customers are, and everything about them. What is their age and gender? Do they have families? Pets? What kind of car do they drive? What are their hobbies? Most importantly, what do they expect to see when they come to your website, office or retail store? What will they see when they walk in your door (or arrive at your digital landing pad)?
I can’t really cover the entire concept of conversion in this article, but let’s just say, it’s like proposing marriage. Or a business partnership. You want to make sure you’ve got the right person for you, and that all the details are just right. More on that later.
All I’m going to say right now is that if you can identify and focus on that conversion moment when you win a lifelong fan, and not just score a one-time sale, then you have begun to create your own 80/20 dynamic.