Posted on October 13, 2015
In today’s marketing arena, the potential to reach audiences in bigger, smarter and more creative ways has never been greater. However, as our opportunities as marketers grow, our ability to instantly pinpoint and measure our successes has become more imperative.
It’s not always easy to gauge what works. Digital marketing strategies, for example, are without a doubt boosting our messages, relationships and audience engagement, so we need to apply a straightforward principle to make sure they are easy to qualify.
So how can we know if we’re on track?
There are, of course, a number of ways available to us to measure Return on Investment (ROI). Big data and bogglingly specific analytics can give us greater and greater insight into how well different marketing activities are working across different channels in quantitive terms. But in a world of increasingly woolly areas when it comes to marketing, we find the Pareto Principle to still be the simplest, most practical and most useful way of looking at the big picture of ROI.
We’d like to talk you through how you could use the Pareto Principle to get a more tangible, meaningful understanding of how well your marketing strategy is working.
The 80/20 rule
The Pareto Principle evolved from an old idea put forward by an Italian Economist, Vilfredo Pareto, in 1906. His mathematical theory, first used as a way of illustrating economic systems, states, in its simplest terms, that is always the minority (the 20% in our ratio) that influences the majority (80%).
We can apply it to almost anything: 20% of advertising cost will deliver 80% of our profits, for example, or 20% of our work time will influence 80% of our results.
How good is ‘good’?
Boiling it down to its simplest terms, if we’re getting out more than we’re putting in, we can conclude our efforts are successful in some way. I don’t think anyone would argue with that one.
But the 80/20 rule can go on to help us measure the qualitative worth of our ROI. If we want to claim a ‘good’ return on our investment, can we know what good means?
Is our ROI meaningful beyond a spreadsheet of big data analytics or revenue streams? We can use the Pareto Principle to help us check.
Are your inputs delivering results that matter?
Before you can work out whether your ROI is as good as it could be, first we need to specify what the ‘R’ stands for.
What return are we looking for? It sounds obvious, but how often do we take the time make sure this is established? Especially as it can vary from project to project.
Is it simply about profit? Or does it go wider than that? Does our ideal return include more enquiries, a bigger mailing list, more website hits? Is it even more intangible than that? Happier customers?
We’re talking about Key Performance Indicators (KPIs) here. By working out what a successful result would look like to us or our clients, in specific terms, you’re more likely to be able to calculate whether the actual return you’re seeing is proving worth the investment.
Are you investing in the right places?
If 80% of our return relies on 20% of our input, then we need to make sure we’re making the most of the input part. By working out what’s working hardest, what’s contributing most to our returns, we can maximise it.
If our goal is revenue, then we could identify the 20% of investors/customers/products that are generating the biggest proportion of our revenue stream.
If our goal is engagement, we could see what types of blog posts, white papers, social messages or web pages are generating the most click-throughs/sign-ups/contact requests.
When we can see who or what is contributing most to the results we’re most interested in, we can then check we’re doing everything we can to maximise that. This is where the ‘I’ of our ROI comes in. Are we investing enough in the right places?
A ratio works on a principle of infinite quantities and always in balance so if the 20 gets bigger, the 80 has to, too.
Once we know we’re investing the right things, in the right places, and getting the right results, we can more confidently claim a meaningfully good ROI.
How about you? Do you use the Pareto Principle to govern your assessment of how well a project has gone? What other ways do you apply it to your marketing activity?
We’d love to hear from you.