Predictive Analytics and the “80/20 Rule”

Nearly everyone in business is familiar with the Pareto principle—sometimes called the “80/20 rule”—which describes an oft-observed phenomenon in which only 20% of the inputs of a process or program generates 80% of the outputs. This translates, for example, into only 20% of clients generating 80% of a company’s revenue or only 20% of a workforce creating 80% of a company’s value. It is an important concept for executives to keep in mind while prioritizing initiatives for customer retention and business development.

Although useful, the Pareto principle has the potential of becoming a trap: Those who rely too heavily upon present information risk coming to believe that the same 20% of customers responsible for 80% of today’s profits will always produce the same amount. While everyone hopes for strong, lasting relationships with good clients, predictive analytics can help you hedge your bets by anticipating the needs of your greatest partners and responding appropriately to inflections in their purchasing habits.

Predictive Analytics for Customer Retention

The main objective of predictive analytics is to extend the reach of current business intelligence to future action. Rather than merely giving you a snapshot of your present situation, predictive analytics reveals trends that inform your decisions and identify variables with a high impact on your bottom line.

Here are some of the insights you may glean from a predictive model:

  • Periods during the year when spending will likely cool
  • Volumes of units purchased across all product offerings
  • Signs of decreased engagement amongst clients

A strong analytics provider can help you gather data from month to month, observe general trends and even perform what-if analyses directly from a custom business intelligence platform. This will enable you to see the factors contributing to the most desirable outcomes for your favorite accounts and show you what to do to maintain their position in the highest 20%.

Predictive Analytics for Business Development

Another well-known rule of business is that growth, adaptation and evolution are necessary for survival. Markets change, as do client needs, and staying ahead of this change is perhaps the most critical hack for your business to learn during the Digital Age. The good news is that predictive analytics can also give you an edge in envisioning where your top 20% will go next.

Here are some examples of trends to monitor:

  • Rising purchases by high-potential clients across consecutive months
  • Fluctuating sales surrounding new product releases
  • Waning activity by historically strong buyers

Each of these examples represents a potential inflection point for your business, but with predictive analytics, you can proactively steer your accounts to good health. Rather than leaving it up to chance, you can plan specific courses of action for addressing different possible outcomes and know well in advance when to implement them. In addition to retaining the cream of the crop, you can also convert others from the remaining 80%.

Predictive Analytics for Internal Performance

With the help of predictive analytics, you can also shape behaviors amongst your employees. Chances are that even though you know which team members are part of the highest-performing 20%, you do not know which discreet and repeatable actions have led them there.

One serious consideration with respect to monitoring employee behavior is the potential for impacting trust. In an era where employees are demanding increased flexibility and greater accountability on the behalf of their employers, anything resembling micromanagement is sure to demotivate staff.

When it comes to performance management, you can use predictive analytics to track whatever you feel is important, so long as you remember two guiding principles:

  • Be transparent in your goals and methods
  • Only hold employees accountable for what they can control

If you follow these guidelines, irrespective of the behaviors you target, you will make it possible for the highest 20% of your talent to shine and the remaining 80% to keep pace with the speed of your growth.

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