Is it possible to double your sales without getting new customers? By reading this article you will learn how to apply Pareto Principle to double your revenue without getting more customers. Pareto Principle is a simple principle that gives you the power to greatly increase your sales without spending more on marketing.

Content Summary

What is the Pareto Principle?
Why is Pareto Principle important?
Why does the Pareto Principle work in sales?
How does Pareto Principle work to increase revenue?
How to apply the Pareto Principle?
Conclusion

What is the Pareto Principle?

The Pareto Principle, also known as the 80-20 Rule, was named after an Italian economist, Vilfredo Pareto. In his research, Pareto found that 80% of the land in Italy was owned by 20% of the population.

Pareto Principle states that, for many events, roughly 80% of the effects come from 20% of the causes.  This is not to imply that the remaining 80% of the causes are useless in delivering the remaining 80% of the effects. As we will see later, the remaining 80% of the causes are very useful, it’s just that they are not as effective as the top 20%.

Why is Pareto Principle important?

Pareto’s 80-20 Rule is now widely used in business and economics as a rule of thumb for how people do things. It is also used as a way to determine where to focus your attention and resources. Some have extrapolated this idea to include the claim that 80 percent of outcomes are a result of 20 percent of the effort.

Since the early 1980s, the 80-20 principle has become a popular business concept suggested using for analyzing and improving organizational efficiency purposes. It has been adopted by various management theorists, including Kaoru Ishikawa, Michael Porter, Peter Drucker, and James C. Collins, who have used it to explain and predict organizational behavior.

Why does the Pareto Principle work in sales?

The 80-20 principle, also known as the Pareto Principle, is a well-known principle, which is known for its effectiveness in many areas. For example, in business, it is possible to increase the revenue of a company by applying the 80-20 principle. The principle states a few very simple things: Not all sales are created equal. In fact, 80 percent of your sales come from 20 percent of your customers.

The same holds for the business you run: a few customers and clients contribute the majority of your business. The 80-20 principle is something you can tap into at any time. It means you can stack your offer to increase your revenue by putting extra effort on 20 percent of your existing customers.

How does Pareto Principle work to increase revenue?

So, you should focus your efforts on those 20 percent of existing customers. Assuming that 20% of your existing customers will be willing to pay 4x the price of your normal product.

The movie business takes place in a way that shows how easy it is to calculate a $10 movie ticket:

$10 x 100 customers = $1000

20 of this group of customers will be willing to pay four times to buy a premium product which means a product that costs $40 will be purchased by 20 customers, which brings you an additional $800

$40(20% of people) x 20 customers = $800

To go one step further by leveraging Pareto Principle to apply the 80-20 rule to the second formula, $160 of the product will be purchased by 20 of this second group of customers which means four of them and that works out to $640

$160 x 4 customers = $640

If you add this up, you’re left with original earnings of $1000. If you stacking your offer by introducing the premium product, you will make $1440. That is more than doubling the initial revenue of $1000.

How to apply the Pareto Principle?

You can always add a premium product to your business and that is why airlines have business class, first-class, and economy class. If you sell courses, you can consider adding in the next tiers like coaching or DFY service; If you sell service, you can also introduce the next tier like a VIP service as your premium product. When you stack your offers in this way, you can increase the customer lifetime value which is a very important concept.

A customer lifetime value is a mathematical expression that is used to show the total value of a customer over the course of their lifetime. You have to know how much each customer is worth to your business and how to increase that value over time.

Conclusion

I hope that you have found some of these techniques helpful. The key to increasing your sales and revenue without getting new customers is to apply Pareto Principle’s 80-20 rule stacking your offer by introducing the premium product.

By offering premium products, knowing your numbers, and maximizing your customer lifetime value, you can outspend your competitors and dominate the market. Please do share any other tips or ideas in the comments below.