Buying Behaviour

The Pareto principle states that 80 per cent of any effort produces 20 per cent of the results, and vice versa. It is a natural law which can be applied to many situations. 20 per cent of a football team score 80 per cent of the goals, and vice versa. 20 per cent of our clothes we wear 80 per cent of the time, and vice versa. 20 per cent of a sales team produce 80 per cent of the orders, and vice versa. If we apply this rule to a customer base, then in most organisations we would discover that 20 per cent of the customers produce 80 per cent of the business, and 80 per cent of the customers produce 20 per cent of the business. In other words, most companies have a few major clients producing large amounts of revenue and numerous smaller clients producing small amounts of revenue. It should also follow that the large accounts bring in most of the profit although that is not always the case. Poor account management means that vast discounts, premium service and customer-led negotiations often erode profit margins.