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The law of the mighty few…and vital few.
If you’re familiar with the Pareto Principle, your wheels are likely already spinning and you’re beginning to grasp the concept of this article, just from the title. The Pareto Principle is an idea that says roughly 80% of outcomes come from 20% of causes. Said differently, a disproportionately small group will bring disproportionately large results.
What does this mean for eCommerce brands? Here are a few things that you can expect:
- 20% of your customers will account for 80% of your sales
- 20% of your SKUs will account for 80% of your total product sales
- 80% of your rave reviews will come from 20% of your customers
- 80% of your sales will come from 20% of your advertising
Applying this idea to user-generated content – or UGC – 80% of your content will come from 20% of your community.
How do you use this information to grow your brand ambassador programs?
The 80/20 Rule for Ecommerce Sales
The Pareto principle is essentially exponential to the 3rd, 4th, and infinite power when applying it to growing your sales. 20% of your top 20% is responsible for 80% of sales and then if you take that 20% you can apply it again.
Repeat customers generate revenue that is nearly 16 times more efficient than one-time customers
For example, 20% of repeat customers are responsible for 80% of revenue. Their revenue efficiency is 80/20 = 4.
For 80% of one-time customers, the contribution to the revenue is 20%. Their revenue efficiency is 20/80 = 0.25
But don’t strain yourself thinking about it too hard. In other terms, the top customers are satisfied returning customers that spend more, buy more frequently, and keep coming back for more. By focusing on customers first and rewarding their loyalty, the ROI of retention will follow.
When evaluating your top 20% ask these questions:
- Who are our most valuable and loyal customers?
- Which marketing channels bring us the most conversions and sales?
- Which are our best-selling products or services?
Review your Shopify, BigCommerce, WooCommerce, or sales data to see which products are your top sellers and should be heavily featured and prioritized. To see what your top 20% of SKUs are, count your total SKUs, divide by 5 (or multiply by 0.2), and aggregate the sales from these products. Compare this to your total revenue from your eCommerce platform.
Do those 20% of SKUs account for approximately 80% of sales? If so, you now know your top performers. This can give you clear insight into what products to focus on in marketing campaigns and which products you need to ensure you always have in stock. If not, it may be worth seeing if there’s enough differentiation among your products. It’s also possible that your sample size is too small and you need more data (aka more sales) for a weighted distribution to appear.
It may feel like a win to say that all of your SKUs sell similarly, though this is more likely to create challenges and lead to a vague focus. Make some tweaks, run some A/B tests, and allow your top performers to identify themselves.
Note that it will likely be beneficial to run this analysis with your sales data to see which products bring the most profit as well. Do your 20% best-selling items make you 80% of your profits? Or are there products outside the top 20% of sales volume that bring in a large proportion of your profits? Looking at these two reports will allow you to see opportunities for the optimization of profits.
Compare this data to draw insights from where that 20% come from, the traffic channels that they discovered, the ads on which they showed conversion, and the content that made them engaged. For effective marketing campaigns, work on this content — optimize, improve and promote your top sales on your top channels.
After looking through this data into what your disproportionately impactful SKUs are, you can use the assumption (or review it yourself and see if it holds true) that 80% of your sales will come from 20% of your advertising and direct that 20% of advertising to your top 20% of SKUs. Layer your top-performing advertising on top of your top-performing SKUs for even more outsized returns.
Keep reading to learn how to identify what advertising activities are going above and beyond for you.
The 80/20 Rule for Customer Success
Nearly 80% of customer complaints are about 20% of products or services. Applying the 80/20 rule for customer success is an informational qualitative tool. Acquiring customer feedback, both positive and negative, is an opportunity for growth to learn and engage with them. It’s important to pay attention to their opinions, needs, and wants. You’re in control of delivering results and can turn a customer’s wrath review into a win. A study by Harvard Business Review states that “the act of just asking for customer feedback is enough to keep customers from churning and coming back for more.”
Encouraging customers to share their opinions in exchange for a reward is an easy way to get their genuine feedback. Customers have a lot in common. You’ll find out the 20% of issues where 80% of customers need help! This will help identify what aspects of the business are not at their full potential and why. By listening to your customers, you can then create strategies to address their feedback and resolve for the most successful impact. When satisfying your customers’ issues, they’ll share with their friends about how you helped them, meaning new potential customers! Everyone’s problem is solved, your brand, your customers, and your community.
We have the perks of high tech that helps marketers collect data from happy customers and analyze their behavior of what they’re sharing and reviewing with their followers!
The 80/20 Rule for Content Creators
Content marketing to build brand awareness is the future of commerce.
And so tapping into the exponential impact of ambassador programs for brands will only become more important.
These programs have a multiplying impact in a similar way to the layering of top-performing ads and top-selling SKUs described in the section The 80/20 Rule for E-commerce Sales.
When your top customers (aka your biggest fans) are creating content about you, their excitement will shine through. The authenticity they post with will make the content engaging, leading to high engagement rates and high-value impressions for your brand. After all, not all impressions are created equal.
Get your top 20% of SKUs in their hands and watch the magic happen.
Achieving the exponential impact of brand ambassador programs is easy when you double down on your best customers/fans/creators and your best products.
Applying the Pareto Principle to content creators and UGC, 80% of your content will come from 20% of your community.
How do you identify your top creators? Use these steps to see who are the top creators for your brand:
- Go into your Social CRM and see how many customers show up. (Example: 8704)
- Divide that number by 5 (Example: 8704/5 = 1740)
- Through filtering, we’ll be looking to get the number of visible customers near this new number (Example: 1740)
- Start by filtering by Engagement Rate. Look to eliminate about half of the customers using this step. An ER of around 3-5% will likely do the trick. The engagement rate is the easiest way to see the quality of the content at scale, and we’re looking for people creating quality content.
- Next, set the Post Count filter to ‘2’. This will now only show you people who have posted more than once. (Note: If you don’t have an active account with LoudCrowd, IG Story posts won’t be collected and counted. To most easily identify your top creators, start a Measure subscription. All Measure features are included in a Grow plan.)
- Connect with your dedicated strategist for any help, we’re always here for you!
Now that you’ve identified your top creators, what can you do to keep them as your top performers and get them to produce even more great content? Turn those top customers into brand ambassadors by inviting them to your VIP and social programs! Spend most of your resources cultivating those top relationships and building new ones by rewarding them for their loyalty. Rewards can include: adding them to your brand’s close friends story on Instagram with exclusive info on product launches or contests, sending PR packages, sharing a discount code for another purchase, and inviting them to private events! A loyalty program will shift and increase revenue to a more consistent 80-20 distribution.
As your business continues to grow, you’ll acquire new customers and so this analysis should be completed at regular intervals. If you’re running brand ambassador programs with LoudCrowd, your Customer Success Manager will continually keep you updated on the newest people creating the best content, the most impressions, and the highest engagement rate.
Building your 80/20 Strategy
Focusing on your top 20% of customers, creators, best sellers, and most successful content that matters is an effective guideline for building your strategic branding framework. In other areas of your business, it’s applicable in understanding your market share, geographic and demographic coverage, and overall profitable costs and losses.
This phenomenon to improve business performance has its pros and cons:
Pros
- Helps you evaluate how to grow your brand in a costs efficient way
- Increases ROI, net retention, and customer satisfaction
- Generates an analysis of how to build your best brand ambassador programs
Cons
- The outlier customers can be left out
- It’s a general observation and the rule doesn’t always apply
- You put all your eggs in one basket
With a 80/20 mindset, your brand can narrow the objectives to focus on the niche of customers that are driving the most revenue and spend fewer resources on what’s not attributing to the larger results. Essentially it stresses the importance of customer loyalty and retention where you’re in control of how you want to maximize profits and minimize misdirected assets to their fullest potential; saving you resources across your efforts.
The rule is a reminder that it’s important to not only work hard or smarter but to work smarter on the right (20%) things. Focus on what matters most (your top-spending customers) and reward them through Loudcrowd!
Contact us to learn more here to see how to maximize the most of your productivity so your team can focus their resources and spend more time on your customers’ positive UGC impact!
