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Work Smarter, Not Harder: Apply the 80/20 Rule and Boost Your Sales

No matter how hard you work, no matter how much market research you do or how much you tweak your product or service, the truth is that your offer will not meet the needs of everyone. And it doesn’t have to. In fact, you only need to please 20% of your target market to have a successful business. Known as the Pareto principle, this nifty tool can free up some of your marketing budget, and help you ensure that you’re only spending money on customers who are likely to make a purchase.

The 80/20 rule, plain and simple

“It is an old business adage,” Perry Marshall, the author of 80/20 Sales and Marketing book, writes for the Entrepreneur. “About 20 percent of your customers produce 80 percent of your sales.” It may not be a comfortable idea to come to terms with, but by focusing on the 20% of customers who do contribute money to your start-up, you’ll eventually build a loyal following of clients who will be happy to purchase from you time and again. Using their characteristics as a blueprint, you can extend the principle to potential customers, targeting only those who most resemble the existing 20% of your clients. So how do you identify the 20% of your most loyal customers? This is where the ‘RFM’ tool comes in.

Recency + frequency + monetary analysis = your perfect customer

Go through your list or database of existing customers, and rank them, according to the following factors. Which of your customers have bought most recently? Which ones have purchased your products or services most frequently? Which ones have spent most money on their purchases?

To turn this into numbers and work out a formula, you’ll need to know:

1)     The most recent date of your customers;

2)     The total number of sales over a set period (six months or a year, for example);

3)     How much each customer has spent on your business in that time.

You’ll need to give each category a score and total up the result. The customers with the highest RFM score are the ones you want to focus your efforts on. It’s not a straight formula though – you’ll need to assign a meaningful score to each of these factors before you can get a valid result. For more detail on how to create this formula for your business, take a look at this blog post by Eight Leaves.

Once you have a list of 20% of your most valuable customers, you can start to identify similarities between them – do they all live in the same city? Do they share similar lifestyles and interests? Why do they keep coming back to your business for more – do they like your products, or do they share similar values to the ones you’re promoting?

What can you do to actively target the 20%?

Once you know that investing in your most loyal customers will pay off, you can get a bit more creative in how you approach them. You can spend a bit longer designing targeted email campaigns that address their specific needs. You can offer them a special discount from a new product or service that matches their specific interests. You can even send them a special present in the post, just to say thanks for their custom. Pretty much anything you do for your most loyal clients is likely to pay off, so don’t worry about spending too much.

If you want to increase your customer base and attract some new leads, you can still apply the 20% rule. Build a picture of your perfect customer, using the list of your most loyal clients to inform you. Then, find out where these people hang out and direct your marketing efforts to those places. These can be networking events, conferences or online hangouts, to name a few. To find out where your customers hang out online, read our previous blog post.

Now that you know who you need to focus on, why not invest in a new marketing strategy to take your sales to the next level? At Cre8ion we specialise in making start-ups thrive, so contact us today for a free chat.

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