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Adopting the Pareto Principle in Business Marketing

Posted on : 09-08-2008 at 0228 hrs
Author : Rif Chia

20/80 Rule

The Pareto principle (also known as the law of the vital few and the principle of factor sparsity) states that, for many events, 80% of the effects come from 20% of the causes.

Eg. Often or not, most people is only wearing 20% of his/her clothes in his/her wardrobe which means 80% of the clothes are wasting the spaces in the wardrobe.

Applying this principle to the internet world, we can actually determine and eliminate redundant costs that are lowering your overall profits.

Is Your Internet Marketing Campaign Worthwhile?
Often or not, most business owners will tend to spend thousands of dollars on Online Paid Advertising without realising that these costs are actually lowering their overall profits. Take a look at your website analysis, what is the percentage of your website visitors being converted into your potential customers? Normally, the common answer would be less than 30% which means that 100% of your ad spend is only converting less than 30% of your visitors. So is your campaign worthwhile?

In the world of internet marketing, there are two types of reach:

1) Reaching out to the curious ones.
This is the most commonly used method which can be easily done by placing attractive or attention seeking advertisements on highly visited websites (High Advertising Costs). Attracting visitors to your website may be easy, however converting them into your potential customers will require good landing pages because most of these visitors do not have the intention to buy. This will eventually result in a 80/20 conversion which means that one is using 80% of the budget to convert only 20% of the visitors. Nevertheless, this is a good method for branding purposes or introduction of new products or services.

2) Reaching out to those who knows what they want.
This is the most cost-effective method and has the highest conversion rate. Why? Because the visitors already know what they are looking for and all we need to do is to convince them. How? In Today's busy world, most people rely heavily on the search engines to source for products and services and by tapping onto these search engines, business owners can easily reach out and convert these targeted audiences.

There are two ways in doing so. First method is to invest constantly on paid advertisements(PPC) which will appear at the side of the search engines for the targeted keywords. Eg. By targeting the keyword Cakes, your advertisements will be shown whenever people search for the keyword "Cakes". This method is often costly due to the fact that it works on a bidding system (Prices vary with time and level of competition) and you pay for every click (PPC) and it is not recommended for long term commitment.

The second method will be applying search engine optimization on your website which means ranking your site at the top of the natural search results. This method is usually time-consuming as it requires constant SEO effort, however this can be done by simply outsourcing to a SEO firm at a standard rate. (Normally much more cheaper than PPC over time). At the end of the day, you will still be reaching out to those who knows what they want at a much lower cost and this method is highly recommended for long term commitment.

Applying the Rule
Reaching out to those who knows that they want usually will result in a higher conversion rate and by applying the 20/80 rule correctly, we are actually eliminating ad spend that leads to low conversion and using only 20% of the budget to reach out and convert 80% of the targeted audiences. Now think about it, is your business fully utilising your Ad Spend?

Tags: Internet Marketing, SEO, Business

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