Are you aware of how the 80-20 Pareto principle can help your company assess your marketing plans and their effectiveness? Are you aware of how the 80-20 rule espoused by this principle can not only improve your marketing plans, but can also help you level out risk, make better business decisions and reduce your expenditures? Perhaps you’re merely wondering what this rule implies and why so many companies use Pareto charts it as their guiding principle to managing marketing and other operations. If that’s the case, don’t despair. The principle is simple and straightforward. However, it has far-reaching implications for businesses and allows them to zero in on those marketing initiatives that produce results, versus those who continually fall short.
The 80-20 Pareto rule implies that 80% of a given outcome is often attributed to 20% of causes. Companies use this rule to level out their risk with respect to their inventory, sales, marketing plans and other business functions. With respect to inventory, the rule implies that 80% of a company’s fastest selling products come from the top 20% of its product lines.In sales, the rule often means that 80% of a company’s sales come from its top 20 customers.
In marketing, it means that 80% of the company’s marketing leads come from the top 20% of its marketing initiatives. In each of these aforementioned scenarios, leveling out this ratio is akin to minimizing risk, reducing expenditures and improving performance. So, how can Pareto charts isolate the best marketing plans?
An Example of Using Pareto Charts for Marketing
Let’s assume a company wanted to assess the success or failure of its marketing initiatives and their ability to generate qualified leads. In doing so, they track the number of leads generated by each and every one of their marketing plans. Next, they would need to account for the individual percentages derived by each marketing plan relative to the total number of leads generated. Finally, they would add the individual percentages together in order to come to 100%. How do they determine these percentages?
Individual percentages = number of leads generated by plan / total leads
For example, the first marketing plan “Google Advertisements” would be 45 divided by 143 or 31%.
The total percentages would be the 31% + 28% +21% and so on.
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What Does the Graph Tell Us?
When you take the time to graph out your marketing plans on a Pareto chart, you are able to disseminate between those plans that perform well, versus those that don’t. However, the question often becomes whether these under-performing plans can indeed be improved, or whether they should be abandoned altogether. The only way you can truly ascertain this is to find out how many of these leads turned into actual customers. In our example above, the first three marketing initiatives account for 80% of the generated leads. However, how many of these leads are turned into paying customers? More importantly, do those four remaining marketing initiatives, in the bottom 20%, generate more paying customers? This is why it’s so important to analyze the actual numbers.
In marketing, it’s never enough to generate qualified leads. Those leads must turn into paying customers. If not, then it puts into question the validity of whether those leads are truly “qualified”! It isn’t inconceivable that the last four marketing initiatives listed above, actually outperform the top three when looking at leads turned into paying customers.
Granted, this is a lot to consider. However, using the chart will help your company identify which marketing plans produce the most leads. Afterwards, you’ll have to determine which marketing plan has the highest conversion ratio of qualified leads to paying customers.
Here is the sample excel pareto chart to track your marketing plans: Download Marketing-Pareto-Chart-Calculating-Lead-Generation
To read more about analyzing the results of a given marketing initiative, please read the following posts.
Does Your Business Know How Much it Costs to Get a New Customer?
Why Are Qualified Leads Important in Marketing & Sales?
Small Business Marketing: The Two Most Important Factors of Success
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