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Can 80/20 be used to improve eCommerce metrics?


I am a big fan of Perry Marshall and his application of 80/20 Pareto principle to sales and marketing. Perry Marshall opens our eyes to look the power of 80/20. In this part 1 of a multi part series, we will explore how 80/20 principles apply to eCommerce.

Why is 80/20 powerful?

We all have heard of the 80/20 or Pareto principle – 80% of the worlds’ wealth is with 20% of the people or from a business perspective, 80% of your revenue comes from 20% of your customers. But 80/20 is more powerful than that for business due to the following reasons.

  • Recursive or exponential application – the 80/20 applies inside the 20% as well. So you may find that 80% of your business comes from 20% of your customers, but also that 80% of the 80% of the business comes from 20% of the 20% customers – i.e. 64% of your business may come from 4% of your customers. And if you have a large enough customer base, this can be applied inside the 4% as well, recursively.
  • 80/20 can be used in a predictive forward looking manner. If you were to identify the 4% in the above example and maximize returns from them or look for more of them you will increase your business.

How can 80/20 apply in eCommerce?

    In this part we show you some insights into eCommerce, specifically finding and working with your most valuable customers

  • Select a metric – revenue / profit / items sold / # of checkouts.
  • Query your sales data for this metric grouping by customer over the last year or lifetime of your business
  • Sort your customers by the the metric.
  • Import this data into excel with the columns revenue, customer_email.
  • You can now plot the data in excel on a line graph – simply select the revenue.
If you are using Magento, the following query on your database will give you 
select sum(base_subtotal) as revenue, customer_email from sales_flat_order where
created_at > (curdate() - interval 1 year) group by customer_email order by revenue desc

The 80/20 power curve (ref : Perry Marshall)

We ran this on a sample real life store data but due to the long tail, we restricted to a minimum value of purchase for a customer to quality for the study. We also scaled proportionally the value number. We ran the 80/20 recursively 3 times and here are the graphs we got. Based on Perry Marshall’s power curve.

80/20 power curve

80/20 power curve

80/20 power curve

Adding more info to your study

  • Add 2 new columns one that gives the cumulative metric and another that gives the % of total this cumulative metric.
  • You can easily see what % of your revenue is due to your top n customers.
  • You may be able to see bands or patterns of value customers.

What can be done with this data?

The top 4%
  • might represent a major part of your metric. Treat these customers differently and see how you can sell more to them, but try to develop a personal relationship with them – a one on one. Create special coupons from them if they like to use coupons, analyse to see if they buy on anniversaries and connect with them, etc. If they like premium, sell them more premium, if on the other hand they like value for money, sell them more of that, individually
  • Ask them for reference – they might easily turn into advocates for your site
  • Is it possible for you to feature them on your site? Do you have a blog? Can you write up feature articles for your best customers?
The top 20%
  • The next band needs to be treated a bit differently – the group will be larger so you cannot market to them with a personal relationship. However, consider putting them into a sales funnel. Cohort them into groups depending on categories they prefer, if they like coupons, etc. and create special newsletters for each cohort. Study the results of each newsletter and see if the sales increase

Considering Pay with Amazon for your eCommerce site


Amazon recently introduced “Pay with Amazon” in the Indian market. Earlier this was available in US, UK and Germany. Amazon also introduced a Magento plugin that gives your shoppers an easy option to pay using the info in their Amazon account.

Many of our Magento site owner customers have asked us to install the plugin. What they see is increased conversions – the theory being we see a lot of drop in our checkout page, so giving one more option to our customers can only help. Infact, the home page of Pay with Amazon says “Make Amazon’s customers your customers – Pay with Amazon helps you increase conversion, reduce fraud, acquire new customers and build loyalty.”

Under the covers

  • Customers registered to your store cannot use pay with amazon.

Pay with Amazon appears in the checkout method of the checkout flow. This section is not available to registered users so by default the button will only appear for users who have not registered.


  • The checkout flow for pay with amazon is completely on amazon, not on your site.
  • See your orders page – your Magento admin does not know who made the order.pay_with_amazon_order_address

An analysis

Your customer does pay and you get an order, but think what you gained and lost!

  • Did you get Amazon’s customers to your site or did you send your customer to Amazon?
    Now that Amazon has information about this customer including the products they purchased, amazon can now target them with products that are better priced at your competitor store or suggest alternatives that you do not have.
  • Cost of your customer acquisition just went up – you do not have on your site the purchasers email address, so you cannot send them a newsletter campaign. Instead you have to hope that they use the retargeting ads to get them back again.
  • You now have to look at 2 admin panels to see your orders – sure you may be already selling on amazon but this order now appears as a amazon order, though the user shopped at your main site. So, your main site orders are now to be located from 2 places!
  • eCommerce stores are moving towards personalization – this is a step back for your store. Tools such as Rrap Multi Tribe are helping customers go towards personlization experience for the shopper, but they all depend on knowledge of customer behaviour. You just lost that for the shoppers who selected pay with amazon.

What can you do?

  • Survey your pay with amazon customers on your site after checkout and on the success page. Ask them if pay with amazon was an important factor in their decision to buy. Take their email address so you know who they are.
  • Work with your developers to make “pay with amazon” as a real payment option. The customer MAY have to give their billing / shipping address at your site and Amazons.
  • Let Amazon know it is not ok – in the US market, pay with amazon DOES NOT take the entire shopping cart – just the cart totals.


Amazon introduced “Pay with Amazon” in the Indian market recently. This article helps you understand the new payment option.