sales analysis

The 80/20 rule or Pareto Principle is a simple way of looking at your sales and profit figures and identifying the biggest sources of contribution. It will enable you to identify which of your customers are profitable, which channels to market you are using are most profitable and which products and services are profitable. Knowing which customers are the most profitable helps in a number of ways.

• You can make sure you really look after those customers.
• You can understand what it is about them that’s making them profitable.
• You can use that information to find other customers who are like them.
• You can then build up the number of profitable customers and reduce the number of less profitable ones.

Once the marketing process is under way this technique can also be applied to your channels to market as well as products and services. The Pareto principle says that 80% of the outcomes will come from about 20% of your effort. It can be applied to many aspects of your business including profits and sales.

Example:

• 80% of your profits may come from 20% of your customers
• 80% of your sales may come from 20% of your products and services

The figures may not work out exactly, for example you could finish up with ratios of 80/35 or 80/25. The principle is we are trying to find the source of the majority of whatever activity is being measured.

There are two obvious conclusions from this relationship.

• A small proportion of your efforts provide most of the result
• A large proportion of your efforts provide a relatively small result

The key areas to address are:

• sales per customer
• profitability per customer
• sales of products or services
• profitability of products and services
• sales and profitability per channel to market (direct sales, web sales etc)

Want to know more about growing your business using the 80/20 rule then get in touch with Tried and tested Marketing, after all we’ve been there and it costs nothing to ask a question, use the form below.