Pareto’s Principle – 5 Implications For Online Businesses

The Pareto Principle applies to a variety of economic and business situations and states that roughly 80% of the outputs are directly attributable to only 20% of the inputs. This concept is also frequently referred to as the “80/20 Principle” or the “Law of the Vital Few.”The Pareto Principle is named for Italian economist, Vilfredo Federico Damaso Pareto who, in 1906, discovered that 80% of the land in Italy was owned by only 20% of the people. Later he recognized that same lop-sided relationship applied to other things as well (e.g., gardening).Note that the 80% and 20% are not absolute values; rather, it is simply the unequal distribution that is significant.1. Individual Considerations:The Pareto Principle reminds you to stay constantly focused on the 20% of the possible daily activities that really matter. Given the complexity of modern society, and especially the information overload introduced by the internet, it is very easy to become distracted and start spending time on things that (although they may be “urgent”) are not really important in determining your business success or your ROI.Simplify Your “To-Do List”
Of all the items on your “To-Do List,” only 20% really matter.
Eliminate those that are simply time wasters and need never be done.
Concentrate on Your Strengths, Not Your Weaknesses
20% of your time will generate 80% of your results.
Automate those things that can readily be automated.
Stay Focused on the 20%
Identifying the critical 20% helps you allocate your time efficiently.
If “fires” come up, and something has to slip, make sure it isn’t one of the critical 20%.
The “80/20 Individual” takes the Pareto Principle to heart and applies its findings to everyday life and everyday decisions. S/he concentrates on – and capitalizes on – individual strengths.2. Customer/Product/Service Implications:Consider the term “Product” to include both tangible (i.e., physical) products as well as services and evaluate how the following rule-of-thumb statistics might impact your business.Identify Key Customers & Best Performing Products
20% of customers account for 80% of profits.
20% of products account for 80% of sales.
Fix or Discontinue Product and Service Problems 80% of customer complaints cluster around the same 20% of products or services.Weed out “customers” that are really just window shopping and don’t dilute your time and resources on products and services that have a negative effect on your bottom line – draining time, energy, and money that could be better utilized elsewhere.3. Website Considerations:Distribution is about getting the products to the customer, and in an online world, much of that distribution happens via one or more of your websites.Identify Your Critical 20% Websites 20% of websites account for 80% of the hits.Determine Critical Traffic Patterns Roughly 80% of your visitors see only 20% of your website pages. (This stat holds true for both B2B and B2C, but may not hold true for pure content sites.)Check Your Web Traffic Logs You’ll find that a small number of keywords, search engines & websites give you the lion’s share of your traffic. The Pareto Principle can provide guidance as you apply SEO to your pages and optimize traffic patterns.4. Management Implications:Small companies, such as the bulk of internet businesses, drive the nation’s economy. Your small business will benefit if you understand how Pareto’s Principle affects your results.Evaluate Your Sales Force (Including Affiliates)
20% of a sales force produces 80% of the annual results.
The best 20% of any group is typically at least 16 times as valuable as the remaining 80 percent.
Just as major corporations need to manage their employees, you’ll need to identify key performers, nurture them, and encourage them if you want your business to be profitable.5. Advertising/Marketing Considerations:Use Pareto’s Principle to help you make good decisions about your marketing and advertising campaigns.Identify Your Best-Performing Ads and Marketing Campaigns
20% of your advertising will produce 80% of your campaign’s results.
20% of a marketing campaign will generate 80% of the responses, etc.
Identify your winning ads, and the placements that produce the best results, then test – test – test, constantly refining them to make them even better.If you’re running a small, online business, you’ve probably already discovered that there are many things demanding your attention at any given moment. One of the greatest challenges you’ll face each and every day is deciding how to invest your limited resources.Consistent application of Pareto’s Principle will help you increase your business’ productivity and overall efficiency, thus maximizing your profits.