The 80/20 rule (also known as the Pareto Principle) states that 80% of outcomes come from only 20% of causes. It was first discovered by Italian civil engineer, sociologist, economist, philosopher, and intellectual jack-of-all-trades Vilfredo Pareto.
Pareto observed that 80% of the wealth in Italy was owned by 20% of the population. After surveying other countries around the globe, he found a striking similarity. Nearly every country had a similar distribution of wealth.
In the more than one hundred years since Pareto’s observation, the 80/20 rule has been adapted and extended by many fields, including mathematics, computer science, business, and marketing, just to name a few.
The 80/20 distribution fits a wide range of naturally-occurring phenomena. For the business owner, the 80/20 rule tells us that 80% of your business comes from only 20% of your customers. For the digital marketing guru, it tells us that 80% of your marketing success comes from 20% of your campaigns.
The 80/20 rule has even migrated to self-help books, like Richard Koch’s The 80/20 Principle: The Secret to Achieving More with Less, where Koch encourages individuals and organizations to embrace the rule and achieve more outcomes with fewer causes.
Doing more with less sounds great, but what does economic theory have to do with your small business? How can a restaurateur leverage the 80/20 rule to grow their customer base and increase their profit?
The 80/20 rule is all about focusing your efforts and increasing your efficiency. Here are a few ways the rule could be used in the restaurant industry.
Customer loyalty programs
In the business world, the 80/20 rule can allow businesses of all sizes to focus on those customers who spend the most money. The rule has helped many companies realize that, while growing their customer base is great, focusing on those customers who spend the most is far more efficient and offers a larger return on investment.
While the numbers might not be the exact same in the restaurant industry, the rule tells us that a large portion of your business comes from a relatively small portion of your customer base. In our line of work, we call these people your loyal regulars.
Though most restaurateurs haven’t heard of Pareto or his principle, most restaurants already have a way of targeting regulars–the customer loyalty program.
The 80/20 rule doesn’t upend or revise the customer loyalty program. It doesn’t tell us anything new. It only scientifically affirms what most restaurant owners already know.
Regulars are the foundational bedrock of any successful restaurant. First, regulars spend more money at your restaurant per transaction than first-timers or infrequent guests. Secondly, when economic times get tough and consumers tighten their purse strings, your regulars are the ones who will keep frequenting and supporting your business.
It’s imperative that you strive to grow your number of regulars and keep the ones you have. The most efficient way of keeping your regulars coming back for more is to incentivize it with a customer loyalty program.
Customer loyalty programs come in all shapes and sizes. Typically, after a certain number of visits or a certain amount of dollars spent, a customer is rewarded with something like a free appetizer, dessert, or a percentage off of their next meal.
Loyalty programs are great ways to show your customers that you value and appreciate their business, while also keeping them coming back for more of what they love–your food and drinks.
Loyalty programs can be digital or analog. Digital programs can be more convenient, but they are also more complex. You will likely need to purchase some kind of software or smartphone app that will keep track of your customers and their purchases. There are many options out there, some of which can be incorporated seamlessly into a variety of POS systems.
On the other hand, analog loyalty programs are far easier to get up and running, but they might be slightly less convenient for your customers. You’ve certainly seen a good ol’ loyalty punch card. That’s all you would need to start your program. However, analog programs require your customers to keep track of their cards and carry them around with them in their wallet or purse. This can be annoying for some.
If you have the time, budget, and technical know-how, a digital loyalty program could be the way to go. But if you want something simple and effective, and you want it up and running quickly, you can find dozens of free restaurant punch card templates online from services like MustHaveMenus. The templates are easy to customize and print, allowing you to launch your customer loyalty program right away.
Employee training
The 80/20 rule has had surprising implications in the world of sales. Many businesses found that approximately 80% of their revenue was coming from 20% of their employees. That’s an astounding figure. It makes one wonder what that small percentage of employees are doing to achieve such results.
Business executives had the very same question, and many studied the techniques of their highest performers so that they could train the rest of their team, finding that small changes in habit, approach, and mindset could have big impacts on their bottom line. By learning from their highest earners, companies were able to increase the sales of all of their employees.
Though the figures might not be the exact same, it’s likely that a smaller number of your servers contribute a larger percentage to your overall sales than you would imagine.
Whether it’s total sales, check averages, or customer reviews, doing a little research and understanding which of your servers are your very best can help you understand how to train your staff, leading to more revenue and better customer service.
After crunching the numbers and consulting review websites like Yelp, Google, and TripAdvisor, try following your star servers around for a night. Of course, they need to know your presence isn’t punitive. They need to know you want to learn from them. After you explain why you are studying them and what you want to know, more than likely your employees will see it as a compliment and be happy to share their expertise.
Once you understand what your highest performers do, you can train the rest of your staff to do the same, allowing you to level-up your entire staff, increase your revenue, and provide top-notch customer service.
Digital marketing
The 80/20 rule also encourages large and small businesses alike to focus their marketing dollars where they can have the largest impact.
While attracting first-timers to your restaurant should be an important part of your marketing strategy, focusing your marketing dollars on repeat customers is money better spent. If you think about it, this makes sense. If 80% of your business comes from 20% of your customers, why shell out big bucks marketing to the larger percentage of your customers that only comprise 20% of your business?
Instead, according to the 80/20 rule, you can get a much better return on investment by targeting the much smaller percentage of your customers who provide the much larger percentage of your revenue.
Not only that, but as any marketing expert will tell you, repeat customers are far easier and cheaper to retain than new customers are to recruit. Combine this with the fact that repeat customers are more likely to spend more per transaction than other guests, the 80/20 rule starts to make a lot of sense for your return on investment.
Marketing to repeat customers can take many forms. Of course, the marketing materials inside of your restaurant can promote your customer loyalty program. This includes things like posters, flyers, table tents, and more. Your social media can also be used to target regulars and new followers alike, keeping them apprised of all of your latest menu items and upcoming events.
Emails can also be collected as a part of your restaurant loyalty program. Targeted email marketing can also help you stay on top of your regulars’ minds and drive repeat business.
Some restaurateurs are better at social media than others. If you don’t consider yourself a social media guru, or if you often find yourself without enough time to brainstorm, draft, and post content, you can find tons of customizable and free social media templates (MustHaveMenus has them for every occasion) to help you fill out your feed and stay in contact with your regulars.
Pareto, party of two!
Understanding the ins-and-out of the 80/20 rule can be confusing, but understanding its implications for your small business doesn’t have to be. Though sometimes the results of our hard work can be hard to quantify, focusing your energy where and when you are likely to get the most return can increase your efficiency, profit, and customer service.
Outsmart your competitors with economic theory. Outsmart them with Pareto’s 80/20 rule.
