Pareto Principle in Conversion Rate Optimization

#Business intelligence

As a business owner, it’s easy to lose focus. Fortunately an Italian economist, named Vilfredo Pareto created a principle that could significantly help today’s entrepreneurs in Conversion Rate Optimization. The 80 20 Rule states that for many events, roughly 80% of the effects come from 20% of the causes. It might sound strange but if you follow our guide you can harvest more from your loyal customers and maximize CRO results.

How does the Pareto Principle help in Conversion Rate Optimization?

I know that at first sight the principle seems like the nonsense Coelho quotes on Facebook. But if you think about your life, it’s everywhere. Look at your phone. The people you often call are  20% of your total contacts at the most, but they are the ones worth to you. If you look at the customer statistics you will clearly notice that some customers (about 20%) earn you an amazing amount of money, while many make you just a little bit or even waste your time.

In today’s super tolerant community it might feel strange to differentiate your „equal” clients, but it’s the key to your success!

Here’s two examples of the 80/20 rule from the online world, aka. Pareto Principle in Conversion Rate Optimization that is worth considering.  

Hitwise carried out a study a few years ago to find the “hits” among the words people search for. They examined the data of 10 million U.S. internet users for three month and found that, only 10.000 terms account  for 18.5% of all search traffic. These words were far more popular, than for any other term, that turned up during the three month period.

Wilderfunnel a digital agency specialized on conversion rate optimization found that, generally only 20 percent of the prospects reach the end of the checkout process on e-commerce sites. Although the remaining 80 percent is also interested in the product, their desire is not strong enough to complete the transaction.

Finding the focus is what you need to maximize the effects of Conversion rates Optimization.. Think about basic ads like shotguns! They appear to everyone and try to find potential clients. But why use a shotgun, if you can target the perfect customers with a sniper rifle?

The 80/20 Rule helps to understand the importance of sorting everything based on effectivity.

Two pie charts to demonstrate the Pareto Principle in Conversion Rate Optimization

How to use Pareto Principle in Conversion Rate Optimization?

1. Tie purchases back to individual customers to know who “your” 20% are.

Every important bit of information has been available for years…you just have to collect what you want to know. Look at your email distribution list or your company’s Facebook followers. Apply the R-F-M rule: Check which customers on your list bought most Recently, bought more Frequently, and spent the most Money. This way you can find out easily, who your 20 percent is.

2. Study their geography, demography and most importantly their psychography to create your customer niche.

The method is pretty simple. You can use Google Analytics or put thumbtacks on a map. It’s  up to you. Your goal is to summarize where and how your 20% lives and what characteristics they have. At this point, you  found your niche and you can start targeting new potential customers.

Pro Tip: Add CrzayEgg.com to find out to which specific area you should put pixels, and paste our baby, SpringTab.com, to know what people like.

3. Treat the regulars as they were special and the 20% as „mommy’s little boy”

Don’t laugh. The more attention you pay for them the more they are going to like you. Invite the most important ones to dinner, or send them a postcard from vacation. A 2008 University of Chicago study found, that customers accelerate their purchase frequency by 20% and buy 20% more when they’re close to earning a reward. Based on this you should gift even the regular customers with little presents. It will build a love-mark and a loyal customer base.

4. Get rid of the problematic ones

Time to admit that there are a lot (10-20%) of people just wasting your time or even generating a loss. Don’t be afraid of blocking them. If you want to be more successful you have to start concentrating on those customers, who have a positive effect on the company.

 

Spread the Pareto Principle to every area of your life.

When your Conversion Rate Optimization works well – thanks to our guide – it’s time to use the Pareto 80/20 Rule to make your life easier. Decide what activities influence you in a good way and stop spending time on others. Look at your friends and sort the ones pulling you back. Surround yourself with successful people and you’ll be successful too.

 

Now, take the time to participate in this little survey and let’s see if you agree with it or not:

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by Péter Szántó
on Tuesday, March 1, 2016

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