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MAY 07, 2020

Why 80% is (often) more than 100%. How agencies benefit from the Pareto principle.

Everyone who works in the advertising industry or in business knows it very well: the Pareto principle.

It can be traced back to the Italian economist Vilfredo Pareto. He determined in 1906 that 80% of the healthy peapod yield from his garden came from 20% of the pea plants. He then found this principle in many other areas of life, such as the economy. Thus, 80% of Italian citizens owned 20% of all land in Italy and in many sectors, 20% of companies accounted for 80% of production output.

Essentially, the conclusion today is that there is an 80/20 ratio between impacts and their causes. The Pareto principle or the 80/20 rule is used in many areas, but especially in companies; and also we'll manage this rule.1,2

This is how (digital) advertising agencies get the most benefit from the Pareto principle.

  • With 20% of your time you can already achieve 80% of your results.
  • 20% of your customers make up 80% of your sales.
  • 20% of your products are responsible for 80% of your sales/profits.

    Those are the classics. But don't just trust it (what good businessman or woman would ;-) ), but let your own analysis data and experience speak for themselves. Because: The key to the success of the 80/20 principle in your company is the correct understanding and the targeted application of the rule in combination with your statistical evaluations. Only then will it unfold its effect and you can generate the most outcome with the least effort.3

It is also important with 80/20 to keep an eye on the relations and the associated input and output and not to fixate on the numbers. Finally, the rule is flexible and is sometimes 30/70 or 24/76. One could also simply say that the majority of the outputs are ultimately generated by a few inputs.

So, and how can you actually take advantage of it now? Very easily. Look at your own stats. These are your best indicators.

For example, your sales figures. Who are your top 20% highest revenue customers? Can you characterize or cluster them? This will help you define this top 20 customer group. Focus on this customer group and strengthen and optimize your marketing in this direction, because after all they are the customers who make up 80% of your sales! Make sure you keep those customers and treat them accordingly. Go one step further and increase your sales by actively searching for new customers who fit into this cluster.

It is just as interesting to analyze which of your traffic channels is generating the most traffic for your website. Here you will also discover again that there are only very few pages from which the majority of your users get to your page!

Your conversion rates also help you to make your marketing even more targeted. Because it's only 20% of your pages where most conversions happen. Optimize these pages for the user to make them even more attractive and get even more conversions.

Once understood and applied, you can benefit even more from the Pareto Principle because it has a hidden superpower. The principle finds itself again and again and is an endlessly repeating pattern. Let's say that 20 percent of your customers are responsible for 80 percent of your sales. Now take that 20 percent and analyze it. You'll find that 20 percent of this group (20 percent of 20 percent) is responsible for 80 percent of those sales. And if you take that 20 percent, you can apply the Pareto Principle again!4,5,6

But why should you be satisfied with 80% instead of 100%?

Let's say you want to launch a website.

First we have a “green meadow” ahead of us; everything is possible. With a precise definition of the task (which content should be on the site, which sub-areas and topics should be covered, which features should the site have, how should it look and feel, etc.), with a definition of the purpose of the website (what is its purpose? ) and a fixed budget, these options are limited, but there are still endless possibilities and ways to build and design a website. We should focus on where we really want the journey to go, what is our basic goal?

Let's assume that the goal for the website launch is "Go Live" in 2.5 months, because you want to offer a new service from then on and this will be advertised on a large scale (of course not only with the help of the new website). Not a really realistic time window considering the above tasks. That's right, for a perfectly conceived and designed website with the latest animations and "killer" features, the time window is probably far from enough. But let's get back to the actual goal. A website is to go online in 2.5 months, which will advertise your newly offered service and possibly support sales accordingly.

A roadmap with milestones is therefore defined. Here we are already working with far-reaching ideas, because we can collect them in our backlog. That means the page starts as simple as possible, but we keep ideas and interfaces open for their elaboration after the goal has been reached. And this is exactly where our 80/20 rule comes in: With 20% of the work we can already achieve 80% of the result, and thus our goal - i.e. a goal-oriented website in two and a half months. If this is to develop into a high-end version of yourself in the future, the missing 80%

Work and additional budget goes into getting that specific and valuable 20% that really defines quality and that we keep in our backlog. With 80%, we have therefore offered our 100% for the time being, because our basic goal has already been achieved at 80%. Now that's the pointUnique. Pixel perfect and ideal.to become.

The “missing” 20%

You know it yourself: "almost finished projects" usually need almost twice as much energy to finalize them as to set them up. A simple example is the creation of a presentation: the basic idea and content are quickly found and written down. There are many sources, all reporting the same thing in a way. But the subtleties make the presentation interesting and valuable. This means you have to do more research, take the design to a new level, remove the relatively worthless content and identify the most valuable key points.

It's the same with a website. The first step can be viewed as an MVP, like the first version in our example above. After the completion of this “minimum survivable” product, there follows an analysis and questions such as: Does it make sense to expand this concept or are customers interested in a different concept? Do we also achieve the set goals and if so, how? How can we expand this? And if not, what should be changed? These exemplary questions could be continued at length.

If the first version of the website is successful, the second stage, the expansion stage, can be initiated with the information from the "MVP phase". This is therefore much more goal-oriented and customer-centric than you would have done in stage oneallegedlycreate perfect website. If the website had already been created and put online on a large scale, the effort to change the concept or to adjust the customer focus would be much greater, since everything is already “finally” finished). It shouldagaininvesting a lot of time and budget into a project that has already consumed both of these resources to a large extent. Thus, with the 80% solution of the website/MVP, you not only save time, you also save on the budget, validate the idea and can build on previous successes or insights and implement the “missing” 20%.

Next time we will tell you exactly what this 80% time-consuming implementation of the missing 20%/ the advanced level looks like ;-)

Sources and academic studies:
1) https://www.forbes.com/sites/davelavinsky/2014/01/20/pareto-principle-how-to-use-it-to-dramaticallygrow-your-business/#367a2f8c3901
2) https://medium.com/creative-collisions/the-80-20-rule-paretos-principle-for-business-sales-marketing-a nd-operations-586af2533e68
3) https://www.entrepreneur.com/article/251822
5)https://medium.com/creative-collisions/the-80-20-rule-paretos-principle-for-business-sales-marketinga nd-operations-586af2533e68

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