X
X

Analysis

When the 80/20 Rule Applies over 100% of Your Business

The Pareto principle, also known as the 80/20 rule, is one of the marketing world's favorite scientific principles. In an industry that often relies on vanity metrics or meaningless data, it's a refreshing staple which remains so steadily true that we can find value from its application almost anywhere

Adam Fout
June 26 2017

In 1906, an Italian by the name of Vilfredo Pareto made an interesting, but seemingly meaningless, observation — about 80% of Italy’s land was owned, at the time, by about 20% of the population.

He wrote about it in a book that was published in 1909, stating that he thought, after researching other countries, that this observation was probably broadly applicable to human wealth distribution — basically, in any capitalist society, you’re probably going to see this same distribution of wealth.

And everyone was like, “K, cool… thanks.”

And that was about it for, like, 40 years.

But then, along comes Joseph Juran, born in Romania, raised in America, who became an engineer and moved rapidly into management in Bell Labs. This guy happened to read Pareto’s work and realized that this little-known economic principle probably applied to quality control issues as well.

He came up with a hilariously rude phrase to describe it: “The vital few and the trivial many.”

And so, time progressed, and people began to see that this 80/20 rule applied just about everywhere you looked. You can read the whole Wikipedia article here if you’re really interested, but here are a few of the most interesting examples.

  • In customer service — 80% of your problems are going to come from 20% of your customers, and 80% of your profits are going to come from 20% of your customers
  • In management — 80% of your value is going to be created by 20% of your employees, and 80% of your problems are going to come from 20% of your employees (not necessarily the same 20%)
  • In computer science — fixing 20% of your most common bugs will fix 80% of your errors and crashes
  • In mobile gaming — 80% of your in-game purchases are going to be made by 20% of your users
  • In website management — 80% of your traffic is going to come during 20% of your uptime, and 80% of your traffic will route to 20% of your pages
  • In construction — 80% of your injuries are going to come from 20% of your hazards
  • In sports — 80% of your wins are going to come from 20% of your competitors or teams (Patriots, anyone?)
  • In weight loss and muscle gain — 80% of your results are going to come from 20% of your exercises
  • In user experience — 20% of the features of your product or service will be used by users 80% of the time

I think you get the idea.

So why harp on this? Because I really want to get across to you that this stuff is broadly, broadly, broadly applicable, that the 80/20 rule applies everywhere, and that it is not something that can be denied or ignored.

And, to go further, it’s something that needs to be paid attention to because you don’t have unlimited time and resources — you have a finite number of employees, a finite number of hours in the day, a finite amount of money that you can allocate anywhere.

If you want to use your time and resources wisely, the Pareto principle can help you do just that.

And, at least as far as we’re concerned here at Post Funnel, it sets you up for some enormous opportunities when it comes to customer retention.

The 80/20 Rule Means 20% of Your Customers Are Generating 80% of Your Profits — And You Need to Keep Them Happy

However, the 80/20 rule also means that 20% of your angry customers are going to account for 80% of your customer service interactions.

There’s a bit of a disconnect here because, I promise you, those 20% of folks who are angry or having a tough time — they’re not overlapping 100% with the 20% of your customers who are generating 80% of your profits.

Now ole’ Juran realized, as time progressed, that the phrase “The vital few and the trivial many” really wasn’t the nicest way to put things — or the most realistic. He later changed it to “The vital few and the useful many.”

Yes, in terms of quality control, we want to focus on those vital few, those big problems that are causing serious issues down the line and getting in the way of profits.

But we can’t forget about the many smaller problems, because they’re useful, but we might not want to focus our resources there.

Unless, of course, we have infinite resources or are superhuman — people like Elon Musk, Steve Jobs, Bill Gates are able to do these things, and, when they do, the results speak for themselves.

Nowhere do we see a better example of what fixing 99.9% of the problems will get you than with Apple at its peak in the early-to-mid 2000s.

Apple’s products weren’t so well loved because they only focused on the 20% of design flaws that mattered most and then pushed a product out the door — they were so well loved because Steve Jobs focused on that critical 20% of design flaws that were holding his products back, took a breath, and then relentlessly ground down the 80% of remaining problems until he achieved near perfection.

This was incredibly time consuming, but it made Apple one of the most profitable and most well loved companies in modern history.

There’s two lessons here — if you can, fix everything, but very few people can, so don’t hold yourself to the same standards as people like Jobs and Musk who seemingly can do anything.

You’re Not Superhuman, and That’s OK, but That Means You Need to Allocate Your Resources Cleverly

I’m no Steve Jobs, and I’m guessing you’re not either — and Apple, though it kicks butt at design, isn’t exactly known for its superior customer service. Customer service can be time-consuming and frustrating, and it often gives you a lopsided view of your customers — you’re constantly hearing from that noisy 20% of your customer base that’s having trouble (and probably angry about it) for one reason or another.

And that’s generally where you end up spending your time.

Because the squeaky wheel gets the oil.

And sure, you’re getting some retention benefits out of this, but here’s the real question — is it worth it? Is paying close attention to those loud, angry customers who are causing most of your problems, those people who aren’t overlapping, necessarily, with the 20% of your customers who are demonstrating real value to your business, is paying attention to these loud folks really what’s best for your business?

That’s something to think about. Here’s another thing to think about — 20% of your customers are going to account for 80% of your brand evangelism events, those coveted moments when a customer, often with little-to-no prompting from you or your company, goes out into the wide world and shouts your praises, either to a close friend or relative or to the world at large via social media.

How do these segments of your customer base intersect? How does your retention strategy take that into account? How much time should you really be spending with these problematic people, especially if they’re not generating much profit and are sucking up your resources in the process?

Is it valuable, to both you and them, to keep them around?

Your Loudest Customers Are Not a Good Representation of Your Actual Customer Base, But It Can Seem Like They Are

I have one other example that I want to share with you that I promise relates to customer experience, something to keep in mind when considering your retention strategy:

The 20% of your customers who are going to account for 80% of the customer experience issues you have to deal with are loud, attention grabbing, and time consuming, but those loud folks do not represent your entire customer base.

And you can’t let their loudness get into your head — you have to remember the quiet people.

In the recent U.S. election, we saw an upset that basically no one was expecting.

Right?

Wrong.

A lot of people expected it — a lot of people voted for our current president, a lot of people thought he had a shot, as in a 30% or so chance of winning.

But that’s not what we heard about — and there was a lot of assumption by the opposition about votes being guaranteed when they were anything but.

What we heard came not just from the traditional media, but from the loud folks on social media. We heard views that were highly polarized, we rarely heard any views that were measured or non-partisan, and the loud folks trumpeted from the rooftops that the current president either had no chance of winning or was 100% guaranteed to win, both of which any statistician with an ounce of sense will tell you is absurd.

And then he won, and everyone realized that those loud people were unrealistic, that the lack of focus on the silent people by the opposition party resulted in a lot of lost votes, that their foolish focus on the loud people lost them a lot of votes, and that this “silent majority,” that shows up in every election cycle, that everyone, but most especially the opposition, forgets about, had made its voice known in a very real way and changed the course of an election.

Now this is not a political article, and we’re not here to talk about a contentious election, the results, or what any of us do or don’t think about what went down — we’re here to talk about facts, and the fact is that 80% of the incorrect information that was being spouted off on both sides of the political aisle was being generated by 20% of the population, that 80% of the focus to grab votes was being put on the loudest 20% of the population, that the silent majority who really carried the election were being ignored by one side and marketed to effectively by the other side.

Most of those loud, attention-grabbing, verbose, publishing-happy folks were wrong, a lot of those loud folks who supported the opposition didn’t actually get out there and vote, and we are where we are today as a result.

If you focus on the loud folks, you miss the folks who matter.

An Effective Customer Retention Strategy Doesn’t Focus on the Loud, Angry Customers — It Identifies Your Most Important Customers and Focuses on Those

What’s the lesson in this for customer retention? The lesson is that loud doesn’t mean valuable. The lesson is that, sometimes, it’s OK to let some angry customers go, that it’s OK to focus on the people who bring the most value and to ignore some of the loud folks.

Because they might just be loud idiots, and they might not be doing much for your company.

Look, in an ideal world, we would all happily provide unlimited customer service to every customer, to make their lives as wonderful as possible with respect to our products and services, to do right by them no matter how nasty or unhappy or valuable they were.

But we don’t live in an ideal world, as you may have noticed — you and I live in the real world, and in the real world, we have to maximize our efforts and minimize our losses.

Here’s a hard truth — many of those loud customers are customers you need to lose. Many of those loud customers are customers that need to disappear, that need to be let go, that are taking up way too much of your time, and that, when compared to the value they generate, are not even close to worth holding on to.

Their seats would be better filled by loud customers who generate value, or quiet customers who aren’t going to generate a lot of value but who also aren’t going to use up your valuable resources keeping them happy.

Now, what that looks like in practice is going to differ markedly from business to business, from product to product, from service to service, and it’s going to depend greatly on your existing customer experience infrastructure and your and your team’s willingness to make changes, so I’m not going to push you in one direction or another — I only want you to be aware of the principles at play and to give yourself permission to change.

I think this is going to be the toughest part for most folks. If you’re like me, you’re passionate about the customer experience because you want people to be happy, you like making people happy, and you like solving problems for folks.

There’s a dark side to this those — people pleasing is a very real character defect, and, if you’re not careful, customers can and absolutely will take advantage. That’s not good for you, your team, or your business, and it can put a big hole in your time, energy, and resources and keep you from providing the best customer experience to your most valuable customers.

But, if you’re able to reduce the focus on the loud customers and find ways to provide the best customer experience to your most profitable customers, another opportunity arises — the chance to turn some of your best customers into brand evangelists.

Ignoring Some of the Loud Folks Can Help You Identify and Inspire Brand Evangelists

Think about it like this — how likely is it that a penny-pinching, angry, needy customer will become one of your greatest brand evangelists?

Not bloody likely — and if it happened, it’d certainly be a story to share because it’d be a bonafide miracle.

But that 20% of your customer base that’s generating 80% of your profits, when those folks are having a customer experience issue, that’s a real opportunity to go above and beyond, to focus your best customer experience employees on making their day, their week, or their month by going over the top to make them happy.

These customers already see real value in your offerings — they’re making that clear through their actions, through their purchases. They’re much, much more likely to become brand evangelists…

If you give them the chance by focusing your best people on these customers instead of just the loudest people.

That pesky Pareto principle dictates that 20% of your customer experience folks are going to do 80% of the work — those are the folks who you need to put in charge of helping your most valuable customers.

Now, many firms have already taken the step of creating specialized customer experience teams of their best folks, but they often employ them in the worst ways, using them to deal with the most difficult customers.

Don’t let those loud fools who generate very little profit take up the time of your most valuable people! The loud people who aren’t worth much can be relegated to the rest of your customer service team.

Instead, use your best folks to provide amazing customer experiences for your most valuable customers. If you add this into your customer retention strategy, not only are you going to keep your most valuable customers around longer, but you’re also going to help inspire those extremely valuable customers to go out there and generate some more customers for you.

And maybe let those loud customers go — they’re not doing much for you anyway.

It’s a winning situation all around — the loud people can go bother someone else and make their lives miserable, the valuable people stick around, keep generating profits, and actually start bringing you some leads, and you get to spend less resources on valueless activities and more resources on helping the people who matter most to your business.

That’s a win/win/win, and who doesn’t love that?

Share

Adam Fout

Adam Fout, resident content sorcerer at BlueSteelSolutions, turns blogs and social media accounts into marketing machines for your business. In his free time, he writes strange bits of fiction and posts them on My Website

More Analysis


Five Things to Consider When Creating Client Personas

Victoria Vix Reitano | 11.06.2017

3 Retail Giants That Rode The Trends

Lauren Dowdle | 10.31.2017