Marketing Focus – The 80/20 rule

Marketing Focus – The 80/20 rule

Working out where your profit is coming from is a great tool for increasing productivity

We believe that there’s no point spending money on marketing in Spain before you know how profitable you are, and where exactly your profit is coming from.This is why a technique such as the 80/20 rule is so useful…

What is the 80/20 rule?

The 80/20 rule is a helpful and simple way of identifying your important customers, your most profitable products and services, and the strengths and weaknesses of your business.

But don’t worry you don’t have to be great at maths….

Why is it important?

There are many benefits to analysing certain parts of your business with the 80/20 rule. You will know which of your customers/products and services are more profitable and why. Also which customers/products and services cost you more. Then you can make sure you are really looking after the customers who contribute most.

How to work out your results

The 80/20 technique usually works better by calculating with gross profits or gross margins. Make a list of everything you spend out on in your chosen category and how much it cost. For instance if you want to analyse your advertising and marketing efforts, list out everything and how much it cost over a period of time to see which of those efforts brought in the most cash. It could be that radio and in-store promotions were the top contributors, providing maybe 70%, and the other efforts making 30% of the profits, so the ratio would be 70/30(You could then analyse why the other 30% wasn’t contributing as much, and decide if you could do something to increase that). If you want to analyse your staff, work out who is being the most productive. It could be that just 20% of your staff contributes to 80% of results (in other words, doing most of the work!), so those staff should be rewarded.

Who and what to analyse

  • Individual customers or group customers
  • Individual Products and services
  • Channels to market (web sales, catalogues etc)

Managing results

When you have the results, you should be able to physically see the strengths and weaknesses of your business, where you can improve, where to focus your efforts, and where your main profits are coming from. This should save time and money in the future as you can really see your business from a different angle. As my old boss used to say, ‘ You can never have too much information’, and when it comes to your business that could not be more true…

Being objective

Remember this is just a guide analysis, and it can be quite difficult to analyse your business objectively when you are so close to it and have so many other things to focus on. If you really want to make sure you are working as smartly and effectively as possible and promoting your company in the right way, it would be a good idea to use outside help. Here at Shaw Marketing Services we offer consultation services to review your company, and to help generate the most impact and return from your investments. Please contact us today if we can help you with any area of marketing a business in Spain.

Comments:
  • Hi Georgina, thats really interesting. I had never heard of the 80/20 rule before. Definitely helps people think about their budgets for marketing and what is effective and working and what isnt.

    June 6, 2011 at 17:30

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