The Pareto Principle

Firstly, my apologies for taking so long to post! There have been quite a few life changes in the last couple of months for Carly and myself- times are busy sisters!

About a month ago, I stumbled upon something called The Pareto Principle while I was studying marketing techniques. Wikipedia describes The Pareto Principle as this:

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. Business management thinker Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of the land in Italy was owned by 20% of the population.[3] It is a common rule of thumb in business; e.g., "80% of your sales come from 20% of your clients."

They go on to say (for perspective):

The Pareto Principle also applies to a variety of more mundane matters: one might guess approximately that we wear our 20% most favored clothes about 80% of the time, perhaps we spend 80% of the time with 20% of our acquaintances, etc.

The Pareto principle has many applications in quality control.[citation needed] It is the basis for the Pareto chart, one of the key tools used in total quality control and six sigma. The Pareto principle serves as a baseline for ABC-analysis and XYZ-analysis, widely used in logistics and procurement for the purpose of optimizing stock of goods, as well as costs of keeping and replenishing that stock (Rushton et al. 2000, pp. 107-108).

In computer science and engineering control theory such as for electromechanical energy converters, the Pareto principle can be applied to optimization efforts. (M. Gen & R. Cheng, Generic Algorithms and Engineering Optimization. New York, Wiley, 2002)

Microsoft also noted that by fixing the top 20% of the most reported bugs, 80% percent of the errors and crashes would be eliminated.

The Pareto principle was a prominent part of the 2007 bestseller The 4-Hour Workweek by Tim Ferriss. Ferriss recommended focusing one's activities to those 20% that contribute to 80% of the income. More notably, he also recommends firing the 20% customers who take up the majority of one's time and cause most trouble.

(On a side note: Four Hour Work Week will be our next give away on March 15th- you must be a follower by the 1st to be in the drawing).

So what does this mean? How can we use this to make our business more efficient? Let's put it to the test (Keep in mind please that this is a VERY basic scope of how this can work for you.)! This is going to be different for every business out there. Carly and I spoke about the 20% of clients that bring each of us the most income. To get to that conclusion, you must first make a list of the types of clients you receive. Be as specific as possible. For example (using our tree business- your list may be completely different):

1. Clients in urban and suburban areas

2. Clients in rural areas

3. Men clients

4. Women clients

5. Clients who find us from Craigslist

6. Clients who find us through fliering

7. Clients who find us through our website

8. Clients who find us through word of mouth

9. Homeowners

10. Land developers

Now in practice, you should be literally writing down every client you've ever had and where you've found them. We will use my ten above as a test- though we get clients from more than 10 sources.

From the ten sources above, the principle states that two of them deliver 80% of our clients. The top two on that list for us are clients in rural areas, and clients through word of mouth (very specific word of mouth/ generally professionals in the tree business that do not do quite what we do, and therefore send clients our way).

So now we have a starting place. We need to focus more of our energy and advertising dollars on clients in rural areas and clients through word of mouth. We have to start getting creative about how this can work. Off the top of my head- we can take out an ad in rural newspapers. We can do fliering in rural areas (where so far our fliering has been in suburban areas). I have a very specific idea for how to create more word of mouth leads: cold calling tree businesses that I know don't do what we do. Then we can offer a finders fee for any leads they send our way, or offer to send the clients that contact us regarding what they do their way. I am leaning towards the former, because I will hopefully end up with quite a few professionals offering to send clients our way. If that's the case, I can't in good conscience promise them each that we'll send clients their way since there'll be more than one of them.

Another spin off from the Pareto Principle is Six Sigma. Six Sigma is process improvement for the sake of your business.



From Wikipedia:

Six Sigma is a business management strategy, originally developed by Motorola, that today enjoys widespread application in many sectors of industry.

Six Sigma seeks to identify and remove the causes of defects and errors in manufacturing and business processes. It uses a set of quality management methods, including statistical methods, and creates a special infrastructure of people within the organization ("Black Belts" etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase).

Read more in depth here: http://en.wikipedia.org/wiki/Six_Sigma

I have also come across an online book called "Six Sigma For Small Business" that you can download for more in depth learning.


So now you have an idea of how you can use process improvement to advance your business. This is a topic that a gajillion books have been written on, so I feel almost silly posting something so remedial, but my hope is that it will make your thirst for more information grow and you'll get out there and figure out how to make this work for you!!!!


Godspeed ladies!

Marketing Tips Part 2

Keep in mind that the more people see your logo and company name, the more familiar and trustworthy your business will seem. So get visible!

The general guideline is that 3% of the business' gross income should be applied toward marketing. Try out different methods and adjust as you go along.

Logos are key to creating a memorable business personality. I used thelogocompany.com and I'm very happy with them. It's only $199 for a logo design, and upgrades are available. I recommend them highly.

They say old clients are the best new clients. Keep in contact with your old clients. Send a thank you note after meeting for the first time, another after completing your transaction, and after receiving referrals or positive reviews online/ letters of recommendation. Send Christmas cards, birthday cards, anniversary of the service ("your new kitchen is a year old!")... Give good clients a gift after completion, such as logo imprinted items (tee shirt, water bottle, etc.), gift cards, anything that seems appropriate. My maternity photographer included two photo magnets with our print order, which not only seems warm and fuzzy of her, but of course I'm going to use it because it's a photo I love. She has her web address tastefully printed on it. Everyone who sees my fridge sees a great photo and her contact info. She essentially put up an ad in my house and I love it! Sweet but sneaky.

Offer customers referral discounts or gifts. Offering an incentive gets people motivated to spread your name (and if it's a gift certificate for your business, even better! Odds are they'll spend over the certificate amount).

Compile a beautiful, professional portfolio, whether you're selling design services or homemade soap! One great way is to scan in any letters of recommendation (ASK EVERYONE FOR THESE!!!) and pair them with photos of your work (you are taking lots of photos, right?) in a printed photobook from one of the many online photo printing services. Keep the design simple and polished.

Donating your services (or even just time and money in your business' name) can sometimes get you a mention in the paper if you're donating it to a real need. Silent auctions are also good to watch for. The full value of your goods or services are tax deductible, people will see your name, and you have very good odds of upselling. I won a photography session at a La Leche silent auction, which included the sitting fee and a $50 print credit. I got it for $20 and I was thrilled, but the photographer is really who won. He was exposed to his target market (young families - oh the little ones grow so fast we need a million pictures!), he got free advertising, he gets a tax deduction, he gets a new client who wouldn't have heard of him otherwise (who could be recurring), and he'll get a sale (as expensive as prints are, I'm sure we'll spend over that $50 credit). Donations are great for everyone involved!

Sending out press releases is something that's often recommended, but honestly, I don't know how to do that! I'm determined to figure it out, and I'll let you guys know! If you know how, we'd love a comment with some info.

Sponsoring a Little League team in an area you'd like to do business is fairly inexpensive ($150-$300) and something we'll be trying out this next season. I'll keep you posted on the outcome.

Advertising in large papers is usually expensive and not worthwhile, but small local papers are a cheap way to spread your name. A one by one ad in our town's weekly paper is $72 a month. I placed the ad a month ago and haven't seen any leads from it, but I think I'll keep it just for the visibility. The more the prospective client sees your logo, there more they subconsciously "know" and trust you.

Car decals/ magnets. Vistaprint has really low prices on these! Again, visibility.

Get yourself a nice logo jacket and wear it EVERYWHERE! This raises your visibility and people will notice it and ask you about it. Even if you only get one lead from this (you'll get much more, though) your return on investment is huge. Keep your business cards handy when wearing your logowear!

If you have employees, consider uniforms or at least logo shirts. A professional appearance helps your credibility.

Pens - the higher the quality the longer they'll be kept. My escrow company gave me a nice pen and it's been in my purse for a year and a half, and I won't forget their name anytime soon because of that fact. Buy a huge quantity and "accidentally" leave them everywhere you go. Leave a few with every client or customer you meet. Sign your receipt at the store, leave one behind. Leave one (or two) with the bill at restaurants. I worked at a steakhouse for a bit and the servers were constantly complaining that customers swiped their pens. The server will appreciate a new pen being left behind, lots of people will see it, and odds are eventually someone will steal it and then your company name will circulate around a new group. A stylish pen design will make even more of an impression. Just be ready to say, "Oh, keep it!" when someone invariably says, "You forgot your pen!".

Networking: I'll discuss further in another post, but those who attend marketing groups are typically a good demographic to be friendly with. They're business owners or salespeople, they know lots of people, and they probably have money!

Contact papers, magazines, and websites about writing a column in your area of expertise. A personal organizer I know writes about organization in the Seattle P-I and DivineCaroline.com (easy place to start writing articles - just create a free account and click My Account, My Articles, Begin Writing An Article) and this gives her a ton of "street cred", if you will. (Her name is Laura Leist and she owns the largest personal organization company in the state and was voted one of Washington's 40 Under 40 Entrepreneurs. She's remarkable.).

Imagine your ideal customer. Now walk around in their shoes. Where do they hang out, what do they read, what will catch their eye? We just placed ads at golf courses because 95% of golfers are homeowners. Then there's the trusty list notepad with magnet backing. We all love those notepads, don't we? So they get used, which means the recipient of that notepad sees your name on an almost daily basis. Understanding their point of view is essential to the success of your marketing.

The most important thing is to be creative. Some of the tried and true things work, but do what no one else thought of and you set yourself apart.

Finally, ask every single person who contacts you how they heard about you and keep a spreadsheet of this info. The trends will start to emerge and it will be clear where your marketing dollars are working and what to rethink.

More marketing tips to come!

Marketing Tips Part 1

The key to having a successful business is Marketing Marketing Marketing! With starting up a business, the money you invest in marketing may be less then you'd like, but you can still make it work! I came across some information indicating that the best way to keep your marketing rolling, is to occassionally splurge on those things that are more costly, and in between to do the less costly marketing tricks.

First tip- Always leave a business card. Always. Give them to your friends to give away, give them to your family members, leave them on cork boards (and another idea that Carly mentioned to me for those left on cork boards, is to get business cards made in post card size!!! Draws the eye right to them!) Put them in all outgoing mail. Leave them with the tip at a restaurant (assuming you didn't tick off the waiter for any reason). Leave them with past clients. A new idea I've just had- offer clients a rebate for passing along business cards to those who buy from you. A referral fee. Get it printed on that back of your business card. Or even offer a discount/coupon on your the back of your business card.

Example:

Redeem this business card before (enter date here) and receive a 15% off of your services/goods!


Second Tip- ALWAYS HAVE A WEBSITE! For the love of Pete, if you don't have a website, get one. It doesn't have to be elaborate, but it does have to be out there for people to find. Everyone and their monkey uses the internet to find businesses anymore, and if you're not available, you're missing out on a whole lotta business! You can do this for a relatively low cost. Microsoft Office Live offers free web hosting and they charge $15 a year for the domain name. Your first year is free. There are many other web hosts out there to assist you in building your website. Be sure to add Meta Tags to your site, and to add it to search engines (see the post below). Send it to everyone you know, link it anywhere you can.


Third Tip- Buy Leads. This wont be applicable to all businesses, but there are some that it will. Service Magic offers lead buying for many businesses that offer home improvement services (this is near and dear to our hearts since I run Peterson Tree Services and Carly runs Hayden Transformations). The company charges a set up fee (I believe service magic is $100), and then you buy leads from them. You can buy as much or as little as you'd like and you can set a budget. The leads vary in price (Tree Service leads for instance run around $10 each, while contracting leads run higher). The leads you receive are customers that are ready to buy what you have to offer. Check to see if there's a lead buying service for your business!






Please post your marketing tips in our comments box!