# The 80/20 rule in construction marketing

1
1489

One key test in assessing your business and construction marketing strategies is the Pareto principle, or 80/20 rule.  Here is the relevant Wikipedia posting.

The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.[1][2]

Business-management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.[2]

It is a common rule of thumb in business; e.g., “80% of your sales come from 20% of your clients”. Mathematically, where something is shared among a sufficiently large set of participants, there must be a number k between 50 and 100 such that “k% is taken by (100 − k)% of the participants”. The number k may vary from 50 (in the case of equal distribution, i.e. 100% of the population have equal shares) to nearly 100 (when a tiny number of participants account for almost all of the resource). There is nothing special about the number 80% mathematically, but many real systems have k somewhere around this region of intermediate imbalance in distribution.[3]

The Pareto principle is only tangentially related to Pareto efficiency, which was also introduced by the same economist. Pareto developed both concepts in the context of the distribution of income and wealth among the population.

Consider the results of our ongoing Construction Marketing Ideas blog survey, where (presently) 72 per cent of readers report most of their business is from repeat and referral clients. Not quite 80 per cent, but close enough.

You can adapt this information in three manners.

1. In the first, you can focus your marketing energies in enhancing and expanding your repeat and referral business.  How can you increase customer satisfaction by designing “wow” results — so that your current clients are so enthusiastic that they will never go anywhere else — and be happy to tell their friends about your quality?  This is in some respects relatively easy to do when your business is very small; it is much more challenging to develop internal systems, hire the right employees and so on to scale the qualities going forward.  But if you can, you are on your way to success.  See this posting about the Net Promoter Score for additional insights.
2. In the second, you can look at which of the “non 80/20″ options attracts the most profitable business for you, at the least cost, and expand your efforts here.  This is helpful in two ways. First, you are achieving “first place” outside of others’ norms (thus gaining a special marketing edge) and second, of course, is you are acquiring new leads and customers you would never find through pure repeat and referral marketing.
3. The third possibility, of course, is the holy grail of marketing success.  You develop one or two (or maybe three) great non-repeat and referral lead generation sources, and feed the new clients into your super-powerful repeat and referral generating systems — and you then are able to grow the business exponentially.

If you sense these ideas are easier to express than execute, you are partly right. You actually won’t have to do too much to achieve the initial baseline execution. Just review your business, cut out the 20 per cent of “gunk” that irritates your clients, and add more of the 20 per cent they love — and you’ll probably discover this fast and simple strategy takes you quite a bit closer to your 80/20 success level. Conversely, you can apply this approach to your external marketing, transferring your resources from the 20 per cent worst “duds” to the 20 per cent “wow, this really works” strategy.

The problem occurs once you’ve captured the low-hanging fruit, especially since your success may create new problems. So, your business grows, but you don’t have the capital or qualified staff to maintain service levels. As you add employees, per-employee efficiency declines (until you get to about 10 to 12, where it can stabilize). You need to build training and hiring systems, and little things suddenly become much more important . . . and then, in putting out the little fires, you discover new bigger ones burning.

Achh. Simple answers are never that simple, eh. However, you can go back to the 80/20 rule and test whether you are on the right track, and then address the issues with a fresh perspective.