Updated: Mar 16, 2019
It’s a principle, not just a theory.
When you use it correctly it’s like harnessing the power of flowing water instead of swimming against it.
The 80/20 principle is know as the “Pareto Principle” because it was discovered by the Italian economist Vilfredo Pareto. He discovered that 80 % of the wealth was owned by 20% of the people.
According to Perry Marshall in the book “80/20 Sales and Marketing” this principle applies to EVERYTHING, from milk production in Wisconsin, church donations, road traffic and basically anything that can be measured.”
Where it really gets interesting is that the top 20% can also be broken down into 80/20.
For example of road traffic, if 80% of the traffic travels on 20% of the roads then 20% of the 20% which is 4% of the roads are traveled on 80% of the 80% of the cars. This breaks down to 64% of the cars travel on 4% of all the roads.
Here’s the math: Roads traveled 20% X 20%= 4% of the roads
Traffic 80% X 80%= 64% of the traffic
Here’s why it matters for sales and marketing.
This same thing applies to your customer base. If 100 people spend $100 average, you collect $10,000 total. Of course not all customers are equal.
According to the curve, the lowest end customer would spend $27 and your best customer would spend $1426! Only the top 20% represent customers that spend near the average of $100.
When this principle is applied it is much easier to see which prospects you should be marketing your products and services to. It also needs to be understood that the capacity of the 1% is almost limitless compared to your average client.
If you can provide more value by packaging and cross selling items that solve your clients problems, they will spend their money with you.
Analyze your own list to see how 80/20 applies to you. You can find out more about 80/20 on our website.