Applying the Pareto Principle to Customers
Research
6 min read
*this blog post contains notes on Alex Hormozi's The Game podcast, ep. 478
Pareto Principle:
The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes (the "vital few")
Alex tells the story of attending a business award ceremony where an executive from a PE firm, Vista, describes how to apply they applied the Pareto Principle to buy and 3x businesses within 3 years.
The Process:
- Survey customers across a wide range of attributes
- Sort by the top 20% in terms of LTV
- Find common attributes
- Use these attributes to target and filter new customers
Additional Tools:
- In the survey, capture conversion data
- Use the conversion data from the top 20% to revamp your conversion process
Alex shared that he compared his business to a similar business and found that, while they severed the same number of customers, their LTV/customer was 70x higer.
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