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The Pareto Principle How it can help you grow your income
exponentially by attracting more Ideal Clients The Pareto Principal was named after the Italian economist Wilfredo Pareto, who, in 1896, found that 80% of the land in Italy was owned by 20% of the population. The odds are you’ve heard of this, better known as the 80/20 rule.
The 80/20 rules states that for many things roughly 80% of the effects come from 20% of the causes.
The 80/20 rule applies to many things in business and in life. For example, 20% of your time produces 80% of your results. This also means that 20% of your customers will bring you 80% of your sales. Unfortunately, many business owners are not conscious of the 80/20 rule and end up, unknowingly, wasting their time, resources and energy marketing to the wrong customers. It is a natural response to want to please ‘everyone’, and it feels intuitively wrong to ignore people. While networking and marketing it feels like you should be shouting out your message everywhere and to everyone, but this strategy goes against the 80/20 rule. All customers are not created equal. Some will earn you large profits, some will bring you a small amount of revenue and some will make you lose money and will waste your time. Your key business strategy should be to focus on the 20% of customers that bring you the 80% of your revenue. Now think: if your ideal clients represent 80% of your income and they are only equivalent to 20% of the total customers you have then you could grow your business a lot by increasing the number of ideal clients you have. What would happen if 100% of these customers were ideal clients?
For this example let’s say you have 100 clients that give you $10,000 of income per month.
2 Of the 100 clients, only 20 clients represent your ideal clients and those people provide 80% of your total income. So the amount of money they bring to your business is: $10,000 * 80% = $8,000 per month. This means that your 20 ideal clients give you $8,000 a month, while the other 80 people only give you only $2,000.
Now let’s take a look at how much more you would earn if all your clients were ideal clients.
If 20 ideal clients bring in $8,000 month, which means each client is worth $400 month. (20 x $400 = $8,000) Then 80 ideal clients would earn you = $32,000 month (80 x $400 = $32,000)
So you could go from earning $ 10,000 a month to $ 40,000 a month by attracting only ideal clients. Now I’ll acknowledge that it would be difficult to have 100% of your clients be ideal clients but think of the benefit of attracting more than you are now. Here are some tips for how to analyze your customer list to create a list of Ideal Clients: These lists can include your email distribution list, past customers, or even Facebook followers.
1. Analyze your sales data for your past customers and apply the R-‐F-‐M rule: Make a list the customers on your list who:
a. purchased most Recently, b. purchased more Frequently, and c. spent the most Money.
These people compose a large chunk of the 20%. You should continue to focus your marketing efforts directed at these particular customers.
2. Research the geographic location of your most frequent customers. Use your point of
3 Plot these customers on a map to get a good visualization of the location of customer groupings throughout your neighborhood, city, country, etc. You will start to notice trends in the locations.
Using this data, you can target your marketing on these certain locations. For example, Facebook can target ads at people who live in certain locations. You can also select people in your own contact list that live in certain locations and send out email or mail communication to them.
3. Determine your customer’s niche or demographic.
You will find that your most frequent customers will fit into a certain demographic. E.g. Married women, age 35 – 45, with 2 kids, and a part-‐time job.
Keep an open mind when determining what this particular demographic is. You can redirect your marketing campaigns at that particular demographic.
4. Break-‐up with non-‐productive leads.
There will always be that small percentage of customers who demand your time and resources and ultimately put you in the red.
Whether they have made a small purchase in the past or said they would purchase from you in the future, some people just aren’t worth the effort. Politely tell these people that you think they would be best contacting someone else who can help them.
5. Identify your spontaneous big-‐purchase buyers.
Opposite to the non-‐productive leads, the spontaneous big-‐purchase buyer will appear from nowhere and make a large purchase. You may not hear from them for a few months but then they will be back for more.
These are the customers you should focus on. Focus your energy building a relationship with these people, not the people who tie up your phone lines and email inbox but never buy anything.
As you start to focus your efforts on the most lucrative leads, using the tips above, you will find the profile of your list will resemble your ideal customer more and more. As this happens your marketing will become more effective and your sales will grow exponentially.