How to apply the Pareto Principle in Marketing » Insights Portal

In 1906, an Italian economist named Vilfredo Pareto created a mathematical formula to describe his country's unequal division of wealth. He showed that approximately 80% of Italy's land and wealth was held by 20% of the population. Below are some examples that you may have experienced in your business.

He later discovered that virtually all economic activities are subject to this principle.

• 80% of your sales are generated by 20% of your consumers;
• 80% of your profit is generated by 20% of your products;
• 80% of complaints come from 20% of your customers;
• 80% of your quality control problems involve 20% of your products.

The Pareto Principle (also known as the 80/20 rule or the law of the vital minimum) says that, in many cases, approximately 80% of the effects of an action come from 20% of the causes.

In Marketing, we can also use the Pareto Principle in some situations.

1. Mining your consumer data

Who are the customers in that 20% that generate 80% of your sales?

If you can identify the characteristics of your top 20%, then you can find more consumers with that profile and make your total sales grow.

Check your sales chart to see who bought most recently, who buys most regularly, and who spends the most money. These are a large portion of your top 20%.

Focus your marketing message on them.

2. Be tough with your time

We are all tempted to spend our time trying to please all of our customers instead of pleasing the most profitable ones.

Then comes our “to-do list”. Crossing items off the long work list can be satisfying, but the 80/20 rule applied to our client list suggests we have to prioritize where we spend our time.

Prioritize dealing with your larger products, which will generate more significant results, first.

Small items that still need attention, but not at the risk of putting your brand in danger, come later.

When evaluating your mid-life goals, focus on the activities or goals that are most critical to your success. Just like your to-do list, not all tasks and goals are created equal.

Check your online database to see which blog post, Facebook post, or other media post delivers the best results. Make more posts similar to these and incorporate tools like videos and more images into the posts.

Also check the ranking of keywords used on your website in Google Analytics. Consider that 80% of your website visitors arrive through the top 20% of keywords.

3. Product development

Determine your “golden products,” those items that make up to 80% of your sales. These are the core products you must work to improve, promote, publicize, and push forward.

This doesn't mean you shouldn't develop new products or increase your diversity of options. Perhaps seasonal items or alternative packaging are the right change for a new product.

Understand that offering an entirely new product will require more time, resources and team support.

Don't ignore opportunities to add new items to your inventory, but don't neglect your established products. At the end of the day, they are the ones keeping your business in business.

Considerations and references

The Pareto Principle is not a law.

The rule is a useful tool when you analyze your efforts and the results. Apply caution to your products and marketing efforts, but apply it.

Below I recommend a video (in English) with a great summary of how to apply the Pareto Principle to your own productivity.

But, if you really want to delve deeper into the application of the principle in Marketing, the digital magazine Entrepreneur has a complete text (also in English) on the subject.

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