Pareto Marketing: Get More From Less

by Chiel April 26, 2018
Vilfredo Pareto 80/20 principle

Do you know which products provide the majority of your sales? If you don’t, then maybe you shouldn’t be reading blog posts right now…;-)

Of course you do. But do you also know what pound for pound, euro for euro, provides the biggest profits? Do you actually know what you spend your money on? Do you know which customers are the most profitable? Do you know which content draws in the majority of the visitors who then go on to buy something from you?

Nominitative Indeterminism: All Things Are NOT On Par With Pareto

Odds are, all these items are subject to the Pareto Principle, also known as the 80/20 rule. Named after economist Vilfredo Pareto, who in the 19th century studied the land distribution in Italy and found that 80% of the land was owned by 20% of the population. More generally, it has been applied to social phenomena where 80% of the results come from 20% of the causes (or inputs).

You may know it from more contemporary examples, such as:

If this seems counter-intuitive to you, that’s because we have been taught oughts insteads of ares. Wealth ought to be distributed equally, but in fact 20% own 80% of the money in the world. We are not really been brought up with thinking in terms of power rules or Pareto Principles, but more in terms of Normal (or Gaussian, or Bell Curve) Distributions.

If this still seems rather academic, let me unpack this rule for you. I will try to demonstrate that the Pareto Principle is in fact one of the most powerful heuristics you can use for your marketing organization.

 

You live in Extremistan, not Mediocristan

As discussed in a previous post, we live in a world that’s volatile, uncertain, complex and ambiguous, with extremely lumpy returns and randomness.

Nassim Taleb calls Bell Curve situations ‘Mediocristan’, and Power Law situations ‘Extremistan’. And this is where your marketing department resides.

Consider these truisms:

  • 20% of your customers account for 80% of your revenues
  • 80% of the work is produced by 20% of your staff
  • 80% of the sales are made by 20% of your brands
  • 80% of your website’s traffic comes from 20% of your posts (let’s hope this one makes it)
  • 80% of social traffic come from 20% of social media sites
  • 80% of your website traffic come from 20% of channel sources
  • 80% of searchers visit 20% of website pages

The above might not directly apply to your situation now, but these are useful heuristics that have been shown to be correct often enough to be extremely useful as a rule of thumb.

Why?

Because it helps you to understand and do the following:

  1. Know what activities, channels or customers to spend your time on
  2. Understand the possibilities and limits of your activities and plan accordingly
  3. Optimize your website and content structure to improve traffic and conversion

Let’s have a look at some specific use cases of the Pareto Principle in Marketing.

 

1. Obsessively focus on your most valuable (potential) customers

Perry Marshall, in his quintessential book 80/20 Sales and Marketing, talks about how to find the powerful 20% of your customers that are driving 80% of the sales.

  • Identify customers who have bought recently, frequently and spent the most.
  • Find out where those 20 percent come from — the traffic channels that they discovered, the ads on which they converted and the content with which they engaged. Optimize, enhance and promote that content.
  • Perform a demographic and psychographic study on your 20 percent. The better you get to know them, the better you can target them.

This helps you not only to serve your most profitable customers better, but also:

  • To really understand what makes these customers tick
  • Find customers like them (same segment, but not yet discovered)
  • Understand where and how to find new audiences (new segment)

 

2. Do Pareto Content Audits

In most cases, 80 percent of your visitors come from a mere 20 percent of your keywords! If this Pareto Principle applies to your website(s), that is an extremely powerful framework to decide what content pieces and pages to put your focus on.

After all, you will understand the relative amount of traffic content can generate compared to the whole, which will help you understand the range of your options.

You can either:

 

  • Double down on a particular piece of content. For example, you may find out that by updating it, making it more SEO friendly, or by changing the structure, you can improve the total amount of traffic per month.
  • Decide it’s not worth the effort to maintain it. You may have put a lot of resources and commitment on creating a particular landing page or blogpost. You may have reworked it several times in an effort to boost the results. Without any success. Doing a Pareto Content Audit might give you the conclusive evidence that it’s not meant to be between your piece of content and your target audience. 💔 But: it will help you shape your persona profiles and deliver better fitting content in the future.
  • Don’t touch it! We all have a tendency to be busy-bodies, when sometimes things just need to be left alone. A Pareto Content Audit might help you see that a piece of content is delivering exactly the type of results that you could expect. Tinkering, in this case, is just a waste of time. Time that you could have spent on doubling down on content that is worth tuning.

 

Doing a Pareto Content Audit takes a bit of time, but the returns on time investment are huge. If you want to be able to move quickly, you first have to gather plenty of insights to understand what your flexibility and options for movement are.

Pareto Content Audit example

In one of my Pareto Audits for example, I discovered that an e-commerce player derived almost 80% of their visitors from less than 19% of their content pages.

And even more so, looking at the time spent on the other 81% of their pages, we noticed that for some of those pages a disproportionate amount of time and effort were spent to (continuously) create and update these pages.

You can do this yourself, if you have your Google Analytics running properly, defined your goals and know your way around Google’s search console. Combine that with tools like SEMrush, and you have the basics of your Pareto Content Audit document.

Where the real power of this document comes in, is when you can combine it with audience insights. For example: for which products or propositions were these pages meant? In other words, how much traffic (in %) are we driving to product A, B, C or D pages? Which personas account for the bulk of our incoming traffic? Can we identify smaller target groups, that nonetheless provide more than their expected return, maybe even 80% of your sales?

Note that the 80/20 Principle doesn’t necessarily and exclusively mean that 20% of the input drives 80% of the output. The rule is fractal, meaning that it itself can be subject to the 80/20 Principle. So for example, it can be 64/4.

Or it can be even more extreme. One of my favourite authors on entrepreneurship, Taylor Pearson, has the following anecdote:

One of the two hundred people happened to have a friend who had a large community of people interested in business books. He introduced us and his friend ended up emailing his community about the book, which drove it to #1 in Amazon’s business and money section. Another of those two hundred people forwarded the book to a much larger “influencer” in my space, who ended up reading the book, inviting me on his podcast, and giving me a blurb. Those two emails probably accounted for over half of my book’s sales.

So there you have it: 1% accounted for 50% of the book sales.

 

3. Evaluate and choose your Marketing tactics with the Pareto rule

In an earlier post, I have discussed the “Hunch-Launch-Crunch” framework to choose from the range of marketing tactics at your disposal.

This framework can be very powerful when used in combination with Gabriel Weinberg’s 19 Traction Channels method for choosing the right channels and tactics to get (new) visitors to your site.

In order to do this effectively, you need to answer the following first:

  • The range of traction channels that can be considered
  • The particular audience you will be testing on (as specific as possible, e.g. “senior sales people in the London area who work in telecommunications”)
  • Your restrictions: budget, time, resources

 

Armed with these insights, you can now take the following steps:

  1. Get your team together for an interactive session. Put a big fat brown paper on the wall, and jot down the 19 traction channels at your disposal. See the 19 channels below.
  2. Now, for each of the members, or if you want, collectively, decide for each of the 19 channels:
    • The input time and/or costs (low, medium, high)
    • The probability of success (low, medium, high)
    • The chances we can reach our customers there (low, medium, high)
  3. You can continue to tally up the points for these channels, by assigning 1 (low), 3 (medium) or 5 points (high) for each factor, and multiply it with the other two. Note that for a) costs you are inverting the scores. So for example, for traditional ads (6) you might have assumed the costs are high (1), the probability of success is medium (3) and the customer availability for this tactic is high (5). Multiply those and you’ll get a score of 15.
  4. Now tally up all the scores of each of the team members for each of the channels, and pick the top 3 channels. RIGHT THEM DOWN ON THE FLIP-OVER OR BROWN PAPER ON YOUR WALL.

As a quick aside: naturally you want to make these channels as actionable as you can. This is totally dependent on your particular circumstances, such as market, demography or location. For example, when you’re evaluating the potential of “Engineering as Marketing”, you will have to make this concrete. Probably the most ubiquitous example, is the use of widgets, such as the ones that Facebook and Twitter distribute freely to be embedded on external sites. But it can be any type of widget, calculator or microsite to attract your audience.  

19 Traction Channels

Now the second part of the exercise, let’s take these 3 top channels that you have just decided on with your team as the ones with the highest potential.

From these 3, you have to pick the 2 channels that seem most ‘risky’ or unsure to you. We will call these the ‘Barbell Weights’, as I discussed in a previous post on Antifragile Marketing. The other one you will treat as a ‘Balancer’ and a comparison for the other 2 channels.

Within these 2 channels, experiment obsessively. Use variations of your tactic. Play with the copy. Change the ad spent. Most importantly: come to understand which 20% of variations of your tactic, or which segments, or whatever you value, drives 80% of the sales.

 

TL;DR

  • 20% of your sales probably comes from 20% of your traffic
  • 20% of your current customers are responsible for 80% of the value of your sales
  • You can understand which channels, content and customer segments drive the bulk of your bottom line
  • Take massive action based on these insights! Stop doing what isn’t working, turn to where profits are made.

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