Image is of a computer tablet with lots of words being displayed. The largest of them read, Pareto 80/20 Principle

Cracking the Code: How the Pareto Principle Can Sniff Out Your Ideal Customer

We all know that understanding your target audience is super important, but identifying your ‘ideal’ customer can also bring fantastic rewards.

Let me introduce you to The Pareto Principle, a.k.a. the 80-20 rule. This potent tool helps to pinpoint your top customers and directly focus your marketing efforts towards them.

Why would you need to do that?

Simple, if you could access a simple process that would allow you to laser-focus your efforts on the most critical tasks and customers that drive your business’ success, would you use it? Let’s be honest; you’d be crazy not to, and here are a few more reasons why you should consider it:

    • Increased revenue: By focusing on your most valuable customers or tasks, you can boost your revenue by devoting more resources to the areas of your business that generate the most income. Genius!

    • Improved productivity: By identifying the jobs that produce the most results, you can streamline your workflow and eliminate unnecessary tasks. This can improve your productivity, efficiency, staff satisfaction and revenue. Are you seeing how this could be a great thing to implement?

    • Better time management: By focusing on the tasks you’ve identified as the most essential, you can use your time more effectively and avoid wasting time on petty activities. Think of the time you will free up. Golf anyone?

    • Improved decision-making: By understanding (and using) the Pareto Principle, you’ll find it easier to allocate your resources, such as your time, money, and personnel.
Overall, the Pareto Principle can help you work smarter, not harder, and by identifying the tasks and customers that pack the most punch, you can concentrate your energy on the things that massively drive your business forward and propel it to success! It’s a win/win!

The Pareto Principle - The quick guide

The Pareto Principle tells us that 20% of your customers make up 80% of your revenue or profits. To make the most of your marketing, you must focus on this 20%. But how do you pinpoint your top customers? It’s easier than you might think.
  • Take the example of a small business owner who creates handmade jewellery. She realises that 20% of her customers account for 80% of her revenue. After analysing this group, she discovers that most of them are women in their 30s and 40s who value high-quality, unique jewellery and are happy to pay a premium. With this knowledge, she can tailor her marketing efforts to draw more customers like them and continue to grow her business.

Let's See It In Action

To put the Pareto Principle to work, you begin by profiling your entire customer base. We’re not talking CSI here, but you need to understand who your customers are. You should conduct market research, group your customers into categories, analyse this data, test your marketing and then rinse and repeat until you find the magic formula/customer. Next, compare your customer base to your dream customer profile or avatar. You’ll likely discover that 20% of your customers closely match your ideal customer profile, and they are your top customers.

Now let’s take it further by using the Pareto Principle again. Crazy, right? Within that 20%, find the next 20% of customers who contribute 80% to your revenue and profitability. If you have many customers, you can continue this process until you identify your “ideal ideal ideal” customer. Here’s an example of how that might look in practice.
  • You own a small business that sells premium handcrafted leather goods. You identify your ideal customer as a 35-45-year-old professional with a high income and a passion for quality and craftsmanship. Upon examining your customer database, you find that approximately 20% of your customers fit this profile. Brilliant! But if you dig deeper and focus on your top customers: you could apply the Pareto Principle again and concentrate on the top 20% of that 20%. Do you understand the ‘working smarter’ bit yet?

    Upon further analysis, you realise that this top 4% of your customer base is highly loyal to your brand, spends the most money on your products, and provides valuable feedback and referrals that have helped you grow your business. By identifying this group, you can customise your marketing efforts specifically to them and continue to develop your relationship, leading to even more sales and growth in the future. You’re not ignoring your other customers, just looking after the loyal ones. It’s an old-fashioned approach to business that many large companies don’t practise anymore.

How Will I Know?

Identifying your top customers helps to focus your marketing efforts on the individuals most likely to buy from you. It also allows you to tailor your messaging and marketing campaigns to address their pain points, values, and beliefs. These are important, so don’t skip them.

But what about customers who don’t fit your ideal customer profile? The dreaded high-maintenance ones! The Pareto Principle also works the other way around. Do you have customers who cause headaches but contribute significantly to your revenue and profits? Yep? Let’s take a different approach and study those customers who create inefficiencies, headaches, and problems in your business.

  • Consider a small retail store owner who discovers that one of their customers falls outside the 20% that generates profits. Although this customer is a regular, they always seek discounts, return items frequently, and cause problems for your staff. By understanding this customer’s behaviour, you can determine if their business is worth the headaches or if it’s time to let them go. By freeing up your staff’s time and reducing inefficiencies, it will enable you to focus on the customers that contribute to the majority of your revenue and profitability. 

What About The Nuisance Customers?

Remember, not all customers are equal. Sometimes it’s better to let go of the ones causing the most significant issues, enabling you to focus on customers who align with your business values and goals.

The Pareto Principle is a powerful tool for identifying your top customers and focusing your marketing efforts on them. You should spend time getting to know them, their pain points, values, and beliefs, and craft your messaging and marketing campaigns to speak directly to them. It’s time to work smarter, not harder.

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