Sunday, August 12, 2012

The Part Of Your Fanbase That Will Pay

Pareto Principle image from Bobby Owsinski's Music 3.0 blog
I've written about this before both here and in my Music 3.0 Internet Music Guidebook, but thought it was worthy of revisiting again.

There's a common rule-of-thumb in business that states that 80 percent of your business comes from 20 percent of your customers (actually called the Pareto Principle). This usually rings true in that in most businesses you have you major customers who bring in most of your revenue, and all your other customers that supplies the rest. If you're in a subscription or mass marketing business where your collecting funds from thousands or even millions of customers (like online), you can still break it down to 80/20 where 80 percent of your business comes from a certain category of users.

The music business was always thought to work on the 80/20 rule as well, but lately there's been a general change of outlook about those numbers. In fact, many music marketers now feel that 90 percent of an artist's income (especially an indie artist) comes from only 10 percent of their fans.

The thinking in the 90/10 rule is that superfans (sometimes called uber-fans or your "tribe") are so passionate that they're purchase just about anything the artist offers for sale, and as a result the income is skewed more heavily in their direction than in other businesses.

There's at least some empirical evidence that 90/10 is indeed true, which means that for an artist to really break big, he has to move those numbers closer to the traditional 80/20 split. A superstar artist has to move those numbers even more. This is how it breaks out:

90% - income from tribe/superfan/uberfan (and anything else you want to call them)
10% - income from casual fans

80% - income from tribe/superfan/uberfan
20% - income from casual fans

less than 80% - income from tribe/superfan/uberfan
more than 20% - income from casual fans

Once an artist establishes himself with a fanbase, regardless how small, the marketing goal from that point is always trying to move the 90/10 split closer to 50/50.
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