Last modified: December 14, 2017
Sr. Director, Global Ecommerce Strategy
All of us want to convert as many customers as possible using the fewest resources. In today’s always-connected world, telling people to focus and do less to get more sounds like magical thinking. Articles highlighting the importance of a focused strategy are a dime a dozen. Is it actionable? I set out to find out for myself. A friend suggested a book called Essentialism — The Disciplined Pursuit of Less by Greg McKeown.
If you haven’t read the book, do soâ€¦NOW! McKeown is one of the hottest business coaches and speakers on the circuit today, partnering with executive teams around the world to help them think differently about the essential things that drive success, personally and professionally.
Marketers understand the daily struggle with their limited time and resources. Constant tradeoffs can be a challenge. Continually asking yourself, which audience should I target? Which channels is best? What offers inspire conversions? The list goes on and on.
For ecommerce teams, the constant underlay to each of these questions is, “how can I convert the most customers for the least amount of resources?”
One thing highlighted in McKeown’s book is the Pareto Principle, which tries to identify the small number of factors that are responsible for the majority of business results. Vilfredo Pareto, an Italian engineer and economist, formulated this business classic that bears his name, which we now refer to as “the 80/20 rule.”
Software companies looking to build a sustainable online subscription business could benefit from the Pareto Principle. The merits of using free trial offerings to get customers in the door in hopes they will later convert frequently result in mailing lists of non-converters. Conventional wisdom suggests companies should not ask for a credit card at the time of sign-up, lowering the barrier to entry for users to opt-in to test a new software application or service. With this logic, if a company achieves a 5-10% paid conversion factor from a free trial and collects thousands of emails in the process — people that can be marketed to in future campaigns — life is good.
But the Pareto Principal disagrees. By applying the Pareto Principal, developing an email base for the sake of having a nice long list of contacts is a complete waste of resources. Software companies need to spend money and time with consumers who are truly interested and somewhat committed to the product.
A client of Digital River recently tested this approach — also adopted by subscription-giants Netflix and Apple — with amazing results. By asking for payment information up-front, the company increased trial-to-purchase conversion rates by over 30%.
So, is the conventional thinking wrong? Are software companies sacrificing revenue for larger email databases? Could the Pareto Principle be a better strategy for software companies selling online?
I’d love to hear others experiences and feedback.