Understanding the Pareto Principle

• The Pareto Principle implies that 80% of results come from 20% of the causes
• Applies to most business cases and can apply to your business as well
• 20% of your VIP customers account for 80% of your total revenue
• Focus on the 20% can help your business scale with minimal investment

The Pareto Principle, also known as the 80–20 rule, is a topic that is often brought up in business. To understand the foundation of what the principle is implying, we need to take a quick dive into it’s history. In 1906, the Italian economist Vilfredo Pareto, found that nearly 80% of the country’s land was owned and controlled by 20% of the population. He also noticed in his garden that 20% of his plants bore 80% of the total fruit that he harvested. After widening his observations to neighboring lands, he also noticed the same disparity in land distribution (80% to 20%) in other regions. Fast-forward to today, and this finding is still everywhere, from software, to business, and even consulting.

How reliable is the Pareto Principle?

The 80–20 rule is simple, and an effective rule to live by, but it’s important to realize that it’s not set in stone, nor does it apply to every situation. The principle itself is more of a statistical rule of thumb, and emphasizes the idea that one action can have results with uneven distribution. Pareto’s observation was that this distribution quite often settled on the 80–20 ratio, and the world just happened to organize itself in this way in many situations. Understanding this principle and applying it to your business can go a long way to help increase sales and grow your company.

Applying the Pareto Principle To Improve Sales and Conversion

Based on this principle, we can assume that 80% of your total revenue will come from 20% of your customers. Most businesses are aware of those customers. They’re usually the top VIP customers that return and make repeat purchases. This means that, by focusing more attention on maintaining or growing the top 20% of the most loyal customers, a company can increase overall revenue and see growth in their business.

The 20% can be considered your fans, as they’ve chosen to make an emotional investment into your brand and your products. Most likely, they’ll appreciate the care and extra mile your business goes to help them. Having fans means that there is a sector of your business that follows you through thick and thin, and this provides your business with an opportunity to increase sales with the least amount of investment.

Some common ways to increase the top 20%:

• Improving the overall customer experience
• Direct and customized interactions
• Increase business efficiency and speed
• Maintain consistency with service/product quality
• Keeping them engaged with your brand
• Letting them know they matter

Tools To Help Apply the Pareto Principle to Online Business

As previously mentioned, most Businesses are aware of who their top 20% are, but many of them are unaware how to apply it. For offline businesses, you can immediately start doing some of things listed above by changing the way you interact with customers in your physical store. But for online businesses, this becomes a challenge as you have limited access to customers. Nowadays, many ecommerce or online businesses are adopting tools to help improve overall engagement, interaction and customer experience. And the most successful online businesses are reaping the rewards of increased sales and conversion through the help of these tools and applying the Pareto Principle into their business processes.

To help you, we’ve put together a list of our top 5 tools to help improve online customer experience and business efficiency.

Top 5 tools to help improve online customer experience:

• Channel.io — Live chat, team chat, CRM marketing, chatbot, automations, analytics
• Mailchimp — Email and SMS marketing, automations, analytics
• Typeform — Customizable surveys for customers, teams, new hires
• 8x8 — Video calling for customer support
• Crello — Drag and drop design software

Good to read with:
Acquisition vs Retention Marketing
Conversational Commerce in Modern Business

Customer Cases:
UUUUU — Providing a Personalized Customer Experience
Bazzaal Box — Simplifying Communication for E-Commerce
Konny Baby — Scaling With An All-in-One Chat & CRM Solution
Lewkin — Building a Business With Live Chat
The Fepi — From Fashion Ecommerce to a One-Stop Shopping Center

Originally published at https://channel.io/en.