How to Apply the 80/20 Pareto Principle
Have you ever wanted to get rid of everything that’s dragging you down in life and business and only focus on the good stuff? It turns out that’s actually something you should be doing. You should be getting rid of what doesn’t work and grabbing hold of what does work in your business.
You can actually work less and earn more money if you cut the fluff. This isn’t a dream world fantasy; it’s just smart business. There’s no reason at all to keep doing something that isn’t working.
Do you have customers that are draining your time? Focus on the ones that don’t. Do you have tasks in your business that don’t earn much for you but are such a drain on your physical and mental energy? It might be that you don’t need to do those tasks at all. It all comes down to the 80/20 principle.
The 80/20 principle is also known as the Pareto principle. It states that 80% of your results come from 20% of your efforts. That means that 80% of the things you’re doing right now are essentially worthless, or at least worth less than you might realize. That’s a depressing statement, but not if you look at it in another way. It means you can drop those time-wasters and focus on the 20% of the producers instead.
By doing this, you’ll do one of two things, or both… you’ll work less and have more time to rest, relax, recharge or enjoy other parts of your life, or you’ll have move time available to scale up your business far beyond what you are able to do now.
This works for everything in business, actually. 20% of your customers are more valuable than gold to you. If you focus more on those customers, and acquire more of that type, your sales will go up dramatically.
If you spend your whole day on 10 tasks, it’s very likely that just 2 of those tasks are the most valuable. Can you eliminate the rest? Not always, but you can get much closer to perfection and higher profits by investigating what’s really working for you as well as what’s not working.
Sometimes, we just do certain things in business because we feel like we have to or should. We don’t stop to ask ourselves if the effort is worth the results. There are times when we’re so sure a certain activity or promotion is really going to produce… but then it falls flat. There are other times when we’re so unsure something’s going to work… but then it takes off like crazy and really surprises us.
I want you to learn how to be more observant to what is and is not working in your business. I don’t want you to feel stuck doing things that aren’t worth it. I want you to be able to tweak what you do in your business so you can work less and earn more. I want you to be able to focus on the top 20% of your activities and efforts that are truly leading to your results.
So, what is the 80/20 principle? It’s something that’s going to change your life, enhance your business, and lead to the fulfillment you’ve been so desperately searching for. We do so much in life and business every day. It’s time to make what you do on a daily basis more efficient and effective so you can get more out of life.
I’m sure you can see the 80/20 principle in action in your own business.
Do 20% of your customers lead to 80% of your headaches? That’s probably the case.
Do 80% of your profits come from a certain type of activity in your business?
Do 20% of the things that go on in your life cause 80% of your stressors? I’d bet on it.
How to Use the 80/20 Principle to Earn More and Work Less
As an entrepreneur, you do a lot in your business so it’s helpful to take stock sometimes. Examine your business and figure out which 20% of your tasks are leading to 80% of your results. Figure out what’s sucking away your energy and what is a reenergizing you. This will help you earn more and work less.
Let’s look at how the 80/20 principle applies to different areas of your business.
The 80/20 Principle for Traffic
As with everything else, 80% of your web and customer traffic results probably come from 20% of your efforts. Customer traffic is so important in any business. If no one knows what you’re selling or what you’re doing, you’re not going to be successful. It doesn’t matter how great what you have to offer is, no one is going to know about it or buy from you.
You’re no doubt doing a lot of things right now to get traffic. If you aren’t, that might be something you need to take a look at as well. If you are in online business, then you might be doing things like buying ads, writing articles, communicating on social media and forums, and so on. But which of these things is really working best for you?
Take a look at what you’re doing right now to get traffic. Make a list, look at the numbers, think about your preferences, and think about the audience you’re trying to attract. What are your lowest value activities when it comes to driving traffic? Cut the bottom ones – maybe it’s just not working for you. For instance, there are certain link building activities that maybe used to work but don’t work at all anymore. Don’t do it just to do it – make sure it’s actually working for you. If you cut the lowest value activities, you’ll have more time and money to spend on the higher value ones that do work.
The 80/20 Principle for Customers
You have customers and that’s a fantastic thing. Your customers are what pay the bills and keep the lights on. But, are all of your customers equal? This is a tricky thing to talk about because of course you want to treat all of your customers well. But you can’t get around the fact that 20% of your customers lead to 80% of your results.
Some of your customers are more valuable than others. When I say more valuable, I don’t mean more valuable as people. What I mean is that their valuable, I mean that their lifetime monetary value as a customer is more than the lowest value customers.
There is also another way to look at this. 20% of your customers lead to 80% of your problems. It’s a simple fact that some of your customers will be more difficult than others. They might have a low monetary value to you but take up much more of your time. What should you do? It’s time to look at how the 80/20 principle can help you earn more, cut the time wasters, and focus more on the higher value customers.
Examine the numbers and figure out which customers have the highest monetary value for you. Figure out which customers have the lowest monetary value for you. This is a little bit different, in that you don’t want to “get rid” of any of your customers unless they’re sucking away your time with no benefit.
After a time, track how you’re doing with your goals. You want to attract more customers and have a higher lifetime value per customer. Constantly tweak and adjust your strategy and move your goals up as you achieve them. You’ll be much more satisfied with the relationships you have with your customers because you’ll have more energy and you’ll be earning more of a profit per customer.
The 80/20 Principle for JV’s
Now, let’s talk about joint ventures and partnerships. In business, you often want to work with others. You can leverage each other to achieve more success. But, some partnerships and joint ventures are more valuable than others. That’s why you need to apply the 80/20 principle when deciding to enter into a new joint venture or partnership, or are considering whether to take more on, or to end one.
You can apply the 80/20 principle to specific joint ventures you have. You can use this to get more out of the agreement. You can also apply the 80/20 principle to ensure you’re taking on the right kind of opportunities in the first place.
Consider all of your partnerships, goals, and all the activities in between. Identify the lowest value activities and cut the bottom ones. Make the middle ones more efficient and strive to have even more profitable agreements. Identify the top most important partnerships and activities and find ways to make them even more efficient and profitable.
The 80/20 Principle for Affiliates
Some of the most successful businesses in the world are always looking for ways to get more affiliates and to help their affiliates become higher producing. This is yet another area of business where you can apply the 80/20 principle.
Take a look at the affiliates you have right now. You’ll no doubt find that 20% of your affiliates are producing 80% of the results. Actually, I’ve found that it’s more like 5% of affiliates produce 95% of the results, but the principle still applies.
It stands to reason that you would focus more on those higher producing affiliates. You can give them more tools, more support, higher commissions, and anything else you can think of to help them become even higher producing.
The first step, though, is to set goals for yourself and for your affiliates. How many affiliates would you like to have? How much, per month, would you like your affiliates to be earning, on average? These goals can help you make plans for how you approach and recruit affiliates and how you treat them once you have them.
The 80/20 Principle for Niches
I work with many online marketers who are in a variety of niches. There are so many great ways to earn money online that it becomes very tempting to build out different niche websites and to try to earn money from as many different groups as possible. If you have a variety of niche websites, products, and efforts in trying to reach people of different niches, it’s time to apply the 80/20 principle so you can be more effective and profitable.
You can probably immediately identify your most profitable niche or niches. But, do you still spend a lot of time on those lower producing niches, hoping they’ll pan out? That might be a mistake, and this is an analysis you need to do.
There’s a tendency to spread yourself too thin when you’re in a variety of niches. Focus yourself and put more of your efforts into what’s already working and you can very quickly grow your profits. Becoming an authority in one or two niches might be better than trying to be active in 10 separate niches and not seeing any results at all. Do this, and you’ll achieve your desired results much more quickly. It’s all about focus, setting goals, and taking the right kind of steps to achieve those goals.
The 80/20 Principle for Products
As a businessperson, you likely have products that you sell. 80% of the results from your products most likely come from just 20% of your products. It’s time to apply the 80/20 principle when it comes to creating products and marketing your products.
Many people make the mistake of trying and trying to make failed products work instead of paying attention to what already works. Sometimes, it doesn’t make any sense to us why one product is more successful than another. But, the market knows what it wants, and you need to squeeze every last drop out of every product you can.
It may be time to release a product that is complementary to your most successful product. Ride that train of success for as long as you can—listen to what the market is telling you. Learn from your mistakes when it comes to selling products but also learn from your successes.
The 80/20 Principle for New Business Ideas
You have to apply the 80/20 principle for any new business idea. There are certain business models that are just always going to be more profitable for you than others. When it comes to implementing a new business idea, it’s hard to figure that out because you don’t have personal data on whether or not it will work for you. However, you can make some pretty solid guesses based on what your passions are and what your skill level is related to that business.
If you only focus on new business ideas and business models that are in alignment with what you want to do and the goals you want to achieve, then you’ll be able to reach success much more quickly. You’ll be able to focus by only doing what’s best for you.
The 80/20 Principle for Business Models
Take a look at your business models and the activities you do within these business models. Identify the 20% of your activities that are leading to 80% of your results. It might be time to drop certain business models that are underperforming and taking up too much of your time.
Examine those business models and activities that are really producing most of your results and scale those up. You always want to scale your winners up and cut your losses on things that just aren’t working. You’ll have more time to spend on activities that are far more valuable for your business.
Think about which of your business models are in line with your passions. If you’re passionate about certain things in your business, you’re much more likely to make an effort with them. You’re also more likely to achieve your goals.
Let the 80/20 Principle Change Your Life
Thinking about how the 80/20 principle applies to your business is going to allow you to work less. You won’t have to work as hard to achieve the same results and better. You’re going to be more efficient and more satisfied as you work because you’re working on the right things.