Pareto’s Principle - 5 Implications For Internet Companies
The Pareto Principle relates to a assortment of economic and business situations and identifies that nearly 80% of the results are derived from only 20% of the activities. This idea is also commonly identified as the “80/20 Rule” or the “Law of the Vital Few”.
The 80/20 Rule is named for Italian economist, Vilfredo Federico Damaso Pareto who, in 1906, documented that 80% of the land in Italy was held by only 20% of the people. Afterward he recognized that a similar un-balanced relationship worked for other areas as well (e.g., gardening).
Observe that the 80% and 20% stats are not unquestionable proportions; rather, it is simply the unequal allotment that is significant.
1. Individual Implications:
The Pareto Principle reminds you to remain constantly focused on the 20% of the possible daily tasks that really impact your profitability. Given the intricacy of modern society, and especially the information overload generated by the Net, it is very easy to become overwhelmed and start focusing on things that (while they may be “urgent”) are not very important in affecting your business success or your ROI.
Reduce Your “Daily Activity List”
* Of all the things on your “To-Do List,” only 20% are really important.
* Get rid of tasks that simply waste time and really not important.
Concentrate on Your Successes, Not Your Problems
* 20% of your activities will produce 80% of your outcomes.
* Automate those things that can easily be automated.
Remain Focused on the 20%
*Finding the critical 20% helps you use your time efficiently.
* If “fires” surface, and something has to fall through the cracks, make sure it isn’t one of the crucial 20%.
The “80/20 Individual” takes the Pareto Principle seriously and applies its findings to everyday life and everyday tasks. S/he concentrates on – and builds on – individual strengths.
2. Customer/Product/Service Implications:
Interpret the term “Product” to include both tangible (i.e., physical) products as well as services and understand how the following rule-of-thumb statistics might impact your business.
Identify Significant Customers & Best Performing Products/Services
* 20% of customers account for 80% of profits.
* 20% of products account for 80% of sales.
Handle Product and Service Troubles or Stop Offering Them
* 80% of customer service problems center around the same 20% of products or services.
Ignore “customers” that are really just window shopping and don’t dilute your time and resources on products and services that simply reduce 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 environment, much of that delivery happens via one or more of your websites.
Identify Your Critical 20% Websites
* 20% of sites account for 80% of the hits.
Discover Key Traffic Patterns
* Approximately 80% of your visitors see only 20% of your website pages. (This statistic holds true for both business to business and business to consumer, but may not be true for pure content sites.)
Examine Your Web Traffic Logs
* You’ll observe that a limited number of keywords, search engines & websites give you the majority of your hits.
The Pareto Principle can inform your decisions as you apply SEO to your pages and optimize traffic patterns.
4. Management Implications:
Small companies, such as the bulk of online businesses, drive the nation’s economy. Your online business will benefit if you understand how Pareto’s Principle affects your bottom line.
Evaluate Your Sales Force (Including Affiliates)
* 20% of a sales force produces 80% of the annual results.
* The best 20% of any group is generally at least 16 times as effective as the remaining 80 percent.
Just as major corporations need to manage their employees, you’ll need to identify key performers, develop them, and encourage them if you want your business to be profitable.
5. Advertising/Marketing Implications:
Use Pareto’s Principle to help you make good decisions about your marketing and advertising activities.
Recognize Your Best Performing Ads and Marketing Promotions
* 20% of your promotion will be the source of 80% of your campaign’s results.
* 20% of a marketing campaign will generate 80% of the results, etc.
Isolate your winning ads, and the placements that produce the greatest results, then test – test – test, constantly refining them to make them even better.
If you’re operating a small, online business, you’ve probably already discovered that there are many things demanding your attention at any given moment. One of the biggest challenges you’ll face each and every day is deciding how to use your limited assets.
Constant use of Pareto’s Principle will help you improve your business’ productivity and general efficiency, thus increasing your profits.
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