Before spending time discussing customer profitability (or relationship-based marketing in general) it makes a whole lot of sense to figure out who one’s customers are. ‘What a customer is’ likely means different things to different people within the company. Also it’s extremely important that you calculate customer profitability so that you know the profile of your ideal customer.
Once you have recognised who your customers are, the next issue that pops up is if you can recognise them in the data. It needs to be identified which transactions and accounts relate to a given customer. Otherwise, you cannot achieve an actionable view of their behaviour and its implication for profitability of the company.
What Is The Pareto Principle?
The Pareto Principle, which was named after Vilfredo Pareto who was an esteemed economist, specifies that 80% of outputs come from 20% of the causes. This means that there is an unequal connection between inputs and outputs. This principle serves as an overall reminder that the relationship between inputs and outputs is not balanced. The Pareto Principle is also called the Pareto Rule or the 80/20 Rule.
The first observation of the Pareto Principle was linked to the connection between wealth and population. According to what Pareto observed, 80% of the land in Italy was owned by 20% of the population. After studying a number of other countries, he found the same applied abroad. For the most part, the Pareto Principle is an observation that things in life are not always distributed evenly.