TL:DR: This post on using the 80/20 Rule in Marketing is from our recent Rethink Marketing interview with bestselling author Perry Marshall.
Perry Marshall was a laid-off engineer and failed salesman eating baloney sandwiches and trying to support his wife and small child in Chicago.
“It was pretty slim pickings for a while,” he said.
Perry managed to get his second sales job before his new employer learned he’d been fired from the first. But something was different. The second job started working.
“And one of the reasons it started working was, during this horrendous baloney sandwiches, ramen soup, cold calling, and all that phase, I had discovered direct marketing,” Perry said.
He’d attended a Dan Kennedy seminar, spent the last $300 he had on a credit card, and bought a set of manuals about direct mail for small businesses.
“When I went to the next job, this was 1997, and they had a website, and they were using the website to attract new customers,” he said. “And I realized without anybody telling me that the same things that work in direct mail work on a website. I realized that a webpage and a direct mail letter weren’t really all that different from each other. And I started learning how to do online marketing.”
And to make a long story short, what happened was the first commission check he got from that second job was the biggest check he’d ever gotten. Four years later that company was sold for $18 million. He cashed out some stock options and started the business he continues to run.
“And I said to myself, all right, I’m OK at marketing now,” he said. “What if I got really, really good?
Twenty years later, he’s authored bestselling books on Google and Facebook advertising, and most recently the 80/20 Rule for Sales and Marketing.
“And 80/20 is really the lever,” Perry said. “If there’s anything you can master, it’s 80/20. So yeah, let’s talk about that.”
This transcript has been edited for length. To get the full measure, listen to the podcast.
How does the 80/20 rule apply to marketing and sales?
Nathan Isaacs: how does the 80/20 rule apply to marketing and sales?
Perry Marshall: 80/20 is absolutely everywhere. And most people have heard about 80/20. Most sales people have some notion that 20 percent of your customers are going to give you 80 percent of your orders. And the other 80 percent of your customers are only going to give you 20 percent of your orders.
Probably lots of salespeople know that.
But people don’t know that it goes way, way, way farther than that. There’s an 80/20 inside every 80/20. So, it’s not only true that 20 percent of your customers spend 80 percent of the money; 20 percent of the 20 percent spend 80 percent of the 80 percent.
If you do the math, that means 4 percent of your customers spend 64 percent of the money. But you can do it again, which means 1 percent of your customers spend half the money. And it means 0.2 percent of the customers spend more than a third of the money.
The other thing is [80/20] is absolutely everywhere. It’s not just customers. And it’s not just sales. It’s products defects. It’s internet bandwidth. It’s the size of files on your hard drive. It’s traffic on the streets in your town.
It’s the size of cities in the United States.
It’s the size of cities in any country.
It’s income distributions in any country. It’s Nobel Prizes. It’s the size of craters on the moon.
It’s absolutely everywhere.
But hardly anybody teaches this. And if you understand 80/20, you will suddenly see levers that are invisible to everyone else. And you’ll be able to make more money faster with less effort. You’ll be able to eliminate waste.
And it’s by thinking counterintuitively.
Nathan: Can you give an example?
Perry: I have got this friend named John Paul Mendocha. And John, when he was 17 years old, he dropped out of high school, and he hitchhiked from Denver to Las Vegas to become a professional gambler. This was his fantasy. He thought, ‘man, if I could be a professional gambler, that would just be like the cat’s meow.’ And so he’s in Vegas and he’s living by his wits. And he quickly finds out, ‘you know what, this is quite a bit harder than I thought it was going to be.’
He’s in a gambling bookstore trying to find some better gambling books. And he meets this guy named Rob who owns a gambling ring. And they start talking.
And John says, ‘Hey, do you think you could teach me how to do what you do?’
And Rob said, ‘Well for a percentage of your winnings I could teach you how to do what we do.’
And so John’s like, ‘OK, that sounds like a good idea.’
So they shake on it.
‘All right, John, you’re in. Jump in the Jeep, John, we’re going for a ride.’
Rob takes John in his truck. And they get on the highway and they’re driving down the road.
And John says, ‘OK, so how do I win more poker games?’
And Rob says, ‘The way you win more poker games is you play against people who are going to lose. And those people are called marks.
You don’t want to play other professional gamblers.
You don’t play people that are good.
You don’t want people that are street smart.
You want gullible stupid people who are marks. That’s how you win at gambling.’
And John said, ‘OK, so where do I find marks?’
And Rob goes, ‘Here, I’ll show you.’
And he pulls into a parking lot. And they walk into a strip club. And there’s women, and dance poles, and rock-n-roll, and people are drinking, and bikers, and all this noise, and distractions, everything.
And Rob takes him in there, and they sit down at a table.
Rob always carried a sawed-off shotgun everywhere he went. And he pulls a sawed-off shotgun out of his jacket. He opens the chamber. And then he slams it shut really quick under the table.
And that’s called racking the shotgun.
And there’s some people in the club, these biker guys, they turn around like, ‘Hey, who made that noise, where did that come from?’
And the owner comes over to the table and he says, ‘Hey, what’s going on over here?’
And Rob goes, ‘Just teaching the lad a lesson, not going to cause any trouble around here, don’t worry about us.’
And then Rob says to John, ‘John, did you see those biker dudes turn around when I made that noise?’
And John’s like, ‘Yeah.’
And Rob says, ‘Don’t play poker with them. They’re not marks. Play poker with everybody else.’
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Well, everything you do in marketing is racking the shotgun. If you bid on a keyword on Google, and some people search and some people don’t. That’s racking the shotgun.
Some people click on your ad and some people don’t. That’s racking the shotgun.
Some people sign up for your emails, some people don’t. That’s racking the shotgun.
Some people open the email, some people don’t. That’s racking the shotgun. Some people click on the link in the email. Some people attend the webinar. Some people attend the demonstration session, or download the free software, or whatever. You can go from one thing, to the next, to the next, to the next. And every step is racking the shotgun.
And a super broad over generalization, every step is also 80/20.
Nathan: And then as you rack the shotgun, you are seeing the difference between who’s going to engage and who’s not going to engage, and just double down on the people who are engaging?
Nathan: Identify the 20 percent, then go back to that 20 percent again, and again, and again.
Perry: You guys are in the marketing automation business. You design processes that do exactly this sort of stuff.
Most people don’t understand, marketing is not a convincing people process. Marketing is a disqualification process. Marketing starts with who didn’t respond so that I can eliminate. Who do I not talk to, who do I not pay attention to?
And the problem is, is most people are obsessing about the people that they should be ignoring. They go, ‘Well, I got 19,000 people on my email list, and only 56 of them showed up on my webinar. So that means there’s 18,944 people that, man, I got to go flog those people.’
Well, probably not. You focus on the people that did do something. And you focus on the small percentage of people that will do a lot. Because it’s all about levers.
And if you market the way that you should, you can and will have more deal flow coming your way. Then you can really cherry pick the best things and ignore the rest. And really that’s the kind of situation that you ought to be in. Your marketing should exceed your ability to close so you can just cherry pick the best things and not waste your time with everybody else.
Nathan: Perry, I’ve enjoyed our interview today. I don’t know if I want to run around with you. You hang out with bikers, and there’s guns, and poker players, and strip joints …
Perry: That’s John. That’s not me. I’m a pastor’s kid.
Nathan: How do you know John?
Perry: I met John at a seminar. You ever see that old movie, Twins, with Danny DeVito and Arnold Schwarzenegger? That’s me and John. I’m the good guy and John’s the bad guy. But he’s got great stories. I stole John’s stories to write my book because they were – nobody could forget the rack the shotgun story.
I’ve got all these customers and they’ll just say, ‘Well hey, you know, we’re driving this traffic to this webpage and we need to rack the shotgun.’ And what that means is, we need to ask them to make a decision right here, right now. And I think it takes courage to do that. When you’re in a sales appointment, are you going to ask them, ‘Do you have the budget for this or not,’ you are racking the shotgun.
And most people don’t have the courage to do that. They want to kick the can down the road and just wait until later. And, hopefully, later the answer will get better, so I’m not going to answer right now.
You need to find out right now. And if it’s the wrong answer, you need to move on.
Because 80/20 is about saying no to 80 percent.