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Not all customers are created equal when it comes to their impact on your business. In fact, according to a well proven concept known as the Pareto Principle, the majority of your profits come from a very small segment of your customer base. Continually nurturing and investing in these valuable relationships can be key to maximizing your growth potential.
So what exactly is the Pareto Principle? It’s more commonly known as the 80/20 rule, and explains the phenomenon of disproportionate distribution - suggesting that 80% of results or effects come from 20% of causes or inputs.
Applied to eCommerce, that means 80% of your sales come from just 20% of your customers.
We should point out here that it’s more of a guideline than an exact science. Whilst the theory of disproportionate distribution is widely observed in business, the ratios can vary - you might find your own distribution to be 70/30 or 90/10.
Still, the 80/20 rule is a good basis for segmentation, allowing you to separate this profitable group and extract the most value from it.
Whilst it’s essential to provide a positive experience for all your customers, understanding what makes the top 20% unique can bring significant benefits:
Customer Retention & Loyalty: when you know what makes your top customers unique, you can develop personalized retention strategies - like tailored communications, exclusive offers and loyalty programs - based on their specific buying habits and preferences. This builds stronger relationships, boosts CLTV and reduces customer churn.
Customer Acquisition: by understanding the characteristics, preferences and behaviors of your top customers, you can identify similar individuals with the potential to become high-value customers themselves. You can also use that knowledge to tailor your marketing, creating messages that resonate and drive engagement.
Product Development: analyzing the purchase patterns and preferences of your top customers can help you spot trends and demands that can guide product development. You can tailor what you offer, or create entirely new products based on the needs of your biggest spenders.
Customer Experience: getting to know your top 20% and how they interact with your store can also help you enhance the overall customer experience. You can identify pain points and areas of friction, proactively address them, and ensure the buyer journey meets the needs and expectations of this segment. By doing so, you’ll increase customer satisfaction, loyalty and positive word of mouth.
The benefits of applying the Pareto Principle and focusing on the top 20% of your customer base speak for themselves - profitable retention, cost effective and targeted acquisition, increased brand advocacy - but what are the practical ‘how tos’ you need to roll out to make it all happen?
First up you need to identify this segment. The most common way to do this is to use the RFM approach (Recency, Frequency, Monetary), which any good CRM will automate for you.
You can then apply various strategies to leverage the profitability of this high-value group. Here’s our top recommendations (and how the REVIEWS.io solution can help).
By monitoring and analyzing user sessions on your store, you gain valuable insights into the experiences of your top customers.
What do they do when they visit your store? How do they navigate it and what elements do they interact with? Where do they experience friction, and what causes them to abandon a purchase? When you have access to this kind of first-party data you can do more of what works and change what doesn’t - enhancing the customer experience for increased satisfaction and loyalty.
Our session replay and analytics tool gives you that data. You can record and replay user sessions to watch the customer experience unfold in real time, and gain the insights you need to make conversion driving improvements.
While first-party data is insightful, zero-party data is invaluable, and post-purchase surveys are a great source. By asking your top customers for direct feedback you can access a wealth of information on their behavior and preferences right from the horse’s mouth.
Using our fully customizable advanced surveys you can ask questions to gather things like:
The possibilities are endless. It all depends on the nature of your business and what you’re looking to achieve. From more intuitive store design to greater ROI on ad spend, whatever your goals are the top 20% of your customer base are best placed to tell you how to achieve them - so asking them directly through post-purchase surveys makes perfect sense.
OK, so chances are your top customers are already pretty loyal to your brand. But it’s important to remember their loyalty is not guaranteed and can be swayed by multiple factors. If you want to retain this profitable segment, you need to acknowledge its value.
A tiered loyalty program is the ideal way to do it, because it offers personalized rewards and exclusive benefits based on a customer's existing loyalty - rather than a generic points based system where everyone is rewarded equally.
By recognizing and appreciating individual value, you create a sense of exclusivity and incentivize continued engagement. Higher-tier customers feel valued and are motivated to maintain their status, maximizing LTV through increased retention and repeat purchases.
Higher-tier customers are also more likely to become brand advocates, so are the ideal segment to hit with referral marketing campaigns - leveraging the relationship you have with your top 20% to attract more customers like them.
It’d be remiss of us as a review solution not to mention the value of collecting reviews from your top customers. These are the people that have already shown satisfaction with your products and customer service, so it’s a logical move to encourage them to share their opinion (if you’re running a tired loyalty program, try incentivizing review submissions).
To really extract maximum value here, we recommend collecting review attributes. These are customizable additional questions you can add to review requests to gain deeper insight on what your top customers really think.
For example, you can collect product attributes to gauge how well your products meet the needs and expectations of your top 20%. These attributes could relate to taste, efficacy, quality, fit according to size - whatever’s relevant to what you sell.
You then have another mass of zero-party data you can use for informed product development - making improvements to suit the very people who already bring you the most profit. You’ll also have a better understanding of what aspects of your products resonate most with your top customers. That’s insight you can use to highlight key product attributes in your marketing, attracting more customers that think like your top 20%.
Applying the Pareto Principle can be a game changer for your eCommerce business. By recognizing the value of your top customers and nurturing those relationships you can drive retention, encourage brand advocacy and significantly boost revenue.
As a bonus, when you understand what makes your top 20% tick, you can make better use of your marketing budget - running targeted campaigns for cost effective acquisition.
So take a closer look at your customer base, identify your top 20%, and develop strategies to engage and retain them. And if you need help with any of the features mentioned, give our Customer Success team a shout. They’ll be more than happy to talk through best use cases specific to your brand.
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