January 16, 2018

Why Do I Care About The 80 / 50 Rule?

Lifetime Value is a function of customer diversity.

When a customer buys via email and search, the customer is typically worth an additional 10% vs. a customer who buys via just search.

When a customer buys two $50 items the customer is typically worth more than the customer who buys one $100 item.

When a customer buys from multiple product categories the customer is typically worth more than the customer who buys multiple items from one product category.

When a customer buys in Spring and Christmas, the customer is typically worth more than a customer who buys twice at Christmas.

Companies that are UNIQUE or who are ultimately looking to SELL are companies that do all of these little things well. And as a consequence, they have a "beefier" customer base - a customer base willing to spend more in the future.

That's where the 80 / 50 rule comes into play. All companies have zealots. Not all companies harvest adequate profit from the middle of the 12-month buyer file. If you generate more than 80% of demand from 50% of the twelve-month buyer file, you're not harvesting adequate profit from the middle of the 12-month buyer file and consequently you are not generating sufficient lifetime value (meaning that it is harder to acquire new customers due to ROI constraints).

Make sense?

Catalog Craig Paperman on the Amazon Toy Catalog

Yes, this is business fiction. If this isn't your thing, take a break and read this article about Build-A-Bear and their promotion t...