The Single Most Powerful Principal For Starting A Business

There have been a lot of smart men in history.  One of them, an economist named Vilfredo Pareto, was smarter than most.  He understood a principle in business that has stuck, and continues getting repeated year, after year.  That rule is, of course, Pareto’s rule, or Pareto’s Principle.

In short, he defines a phenomena that states only 20% of the effort you put into your business is going to produce 80% of the results.  In other words, the 80/20 rule.  The reason this principle has stayed so popular is because it can be applied to just about any area of your life, business, or relationships.

Let’s look at a few specific examples of the 80/20 rule in action.

A company applies the rule to their business’ product sales line.  By doing so, the company knows that 80% of their sales are going to come from 20% of their customers.

The same company also knows that, in terms of human resource problems, 20% of the employees are going to present 80% of the problems.

Another example from our hypothetical company would be customer complaints.  A business manager will know that 80% of the customer complaints are going to only be coming from a small 20% subset of their customer base.  80% of the company’s production comes from 20% of the employees.

The rule has been used in business because it can easily be adapted to just about any situation.  It also gives a fairly clear view of what needs to be focused on, and what requires the most attention inside of a company.

While it is a good way to evaluate yourself, your business, and your life, it’s not always foolproof.  That means you shouldn’t necessarily rely on the Pareto principle for every aspect of your business, rather, you should be using it to determine the small subsets of your business where you’re going to see the biggest returns.

So how can you apply this powerful, time-tested rule in your own business?

Think about it for a second.

While the rule applies to just about every industry, when it comes to building an online business the rules are a little bit different.  Look at different, hypothetical scenarios so you’ll know what to expect, and be aware of the areas you need to focus your efforts.

20% of the marketing and promotion efforts you do for your business are going to bring in 80% of your visitors.

As you build out your blog, or website, you’re going to start gathering natural, organic traffic.  Once you start focusing more on marketing your business, you’ll start to see patterns.  If you create 10 different email proposals to reach out for guest posting, you’ll notice that 2 of them tend to get a better response.  Take those 2 proposals and turn them into templates that you can send out to other blog owners.

20% of your visitors are going to make up 80% of your total sales.

From your marketing efforts and build up your traffic, you’ll begin to notice that 20% of your visitors will make up the sales that you produce.  It may not happen the first time your visitor arrives, but, on average, you’ll be able to convert 200 people out of 1,000 into a sale at some point in your sales funnel, if you’ve planned it out to efficiently produce for you.

20% of the pages on your website are going to be responsible for 80% of your traffic.

Whether you’ve designed the content to funnel traffic into certain parts of your site, or it happens naturally, 20% of the pages you create, or blog posts you write, are going to be responsible for 80% of the traffic you receive.  Sometimes it happens because a post, or page gets shared across social media.  Other times, it happens because you’ve designed the content as a sales funnel.

20% of your customers are going to make up 80% of your customer service issues.

Your customers are the lifeblood of your business.  If you sell 1,000 products, you’re going to end up receiving around 200 customer questions, concerns, or complaints.  Of those 200, 20% of them — or 40 — customers are going to require more of your time than others.

It doesn’t matter how you break it down, either.  Pareto’s Principle is endless, meaning that you can apply it infinitely to any area of your business.  Mastering the principle is going to be crucial to being successful in anything you do.

What I mean by that is this.  If you have 1,000 readers, 200 of them may purchase from you.  Of those 200, applying the 80/20 rule again, 20% of them — or 40 customers — are going to make up the largest portion of sales.

You can go on, and on, with the different scenarios and figure out how to apply Pareto’s rule to each.  The point of this post is to make you aware of the principal, and show you how it relates to building an online business.

It’s not a hard, fast rule, but it applies to brick and mortar businesses, online businesses, and can be applied to any aspect of your life — helping you find a good balance.

Cheers,

-Marshall

Josh Killingsworth

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