The Pareto Principle or 80/20 Rule

Over the past year I have written about the importance of search engine placements and their (necessary) cost; the sweet 16 principles of good business practice, and the practicability of higher speed services. Assuming that you have spent the time, effort, and money on your web site how do you determine its effectiveness and ROI (return on investment). There are three customer groups who will visit your site:

* A very few customers that will be unimaginably profitable. * A medium sized group of customers with OK profits. * An enormous amount of the customer base that will be near profitless

You need to figure out, very quickly, which group your potential customer belongs to. You can do this by using a recency (time elapsed since last activity) measurement. In simple English "those unique visitors who come back to your site the most often" will be your best, and your most profitable customers. How do you determine this? Ensure that your web hosting service provides you with your own web site statistics. Very often this option is not available or if it is, it is not used. It is like throwing your money away to ignore your own sites statistics. Knowing who is visiting your site, what pages they are going to and what pages they are leaving could provide you with a measure of three critical factors:

1) You could focus your effort on those who are returning most often. 2) You could determine who these persons are and concentrate on keeping them happy and generate repeat sales. 3) You could set up a system which would "warn" you when they begin to lose interest in your site and leave.

See this illustrated in graphic form at http://www.jimnovo.com/graphs.htm#one and http://www.useit.com/alertbox/zipf.html This is "Zipf's Rule" If you graph the number of days since last purchase, it looks the same. So does the number of days since the last log-in. Zipf rules the web.

Why should you care? The number of days or weeks since the last "action" for each customer - purchases, visits, sign-ups, downloads, any action at all - is very predictive that a customer will take action again. Next week more on Zif's law

In order for the Pareto Principleto work you will need to have access to your web site log (the file which records who visits your site) and a site statistical measure. All good web hosting services will provide you with a REAL TIME site statistical package at NO EXTRA COST. This is probably one of your most valuable tools to assist you in determining the effectiveness of your site, who visits, from where and which part of the site is most popular can easily be seen in the statistics data.

Repeat traffic coming from a specific search engine or specific links and in the shortest period of time will give you a measure of "recency" and that will be your most profitable source of income.

Customers who come from certain ads to your site and buy certain related products will remain your best customers. Those ads or products which produce the greatest "recency" (most frequent returns) are your best customers.

When recent frequent customers show up at your site less often (longer time between visits) they are getting ready to defect to another location. Youare losing their "recency" and extra effort should be made to keep them.

The final process is to take your "raw" web log data (a good web hosting service will provide you with an option to download the raw data from your web site log), import it into a spreadsheet create your own data base, and then run a data base query or create your own customer management system.