The Pareto Principle applies to a assortment of economic and business situations and shows us that nearly 80% of the results are directly attributable to only 20% of the activities.  This idea is also commonly referred to as the “80/20 Rule” or the “Law of the Vital Few”.

This principle is named for Italian economist, Vilfredo Federico Damaso Pareto who, in 1906, determined that 80% of the land in Italy was held by only 20% of the people.  Soon after he understood that an identical lop-sided relationship applied to other things as well (e.g., gardening).

Notice that the 80% and 20% stats are not unchangeable proportions; instead, it is merely the unequal allocation that is significant.

1. Individual Implications:

The Pareto Principle serves to remind you to remain constantly alert to the 20% of the possible daily activities that really affect your productivity and profitability.  Given the intricacy of prevailing society, and particularly the information overload introduced by the Net, it is very easy to get confused about what’s really important and start putting your attention on things that (though they may be “screaming for attention”) are not truly important in affecting your business success or your profitability.  

Limit Your “To-Do List”

• Of all the entries on your “To-Do List,” only 20% are really critical.
• Get rid of those that are simply time wasters and really not important.

Focus on Your Positives, Not Your Problems

• 20% of your time will dictate 80% of your outcomes.
• Automate those items that can readily be automated.

Remain Focused on the 20%

• Finding the critical 20% helps you apply your time efficiently.
• If “fires” interfere, and something has to fall through the cracks, make sure it isn’t one of the essential 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 capitalizes on – individual strengths.

2. Customer/Product/Service Implications:

Interpret the term “Product” to include both real (i.e., physical) products as well as services and determine how the following rule-of-thumb statistics might impact your business.

Discover Key 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 Faults or Discontinue Them

• 80% of customer complaints 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 have a negative effect on your bottom line – draining time, energy, and money that could be better used elsewhere.

3. Website Considerations:

Distribution is about getting the products to the customer, and in an online world, much of that delivery happens via one or more of your websites. 

Recognize Your Essential 20% Websites

• 20% of websites account for 80% of the visitors.

Identify Key Traffic Patterns

• Approximately 80% of your viewers see about 20% of your website pages. (This statistic holds true for both B2B and business to consumer, but may not hold true for pure content sites.)

Examine Your Web Traffic Registers

• You’ll find 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 improve traffic patterns.

4. Management Implications:

Small companies, such as the bulk of internet businesses, drive the nation’s economy.   Your internet business will benefit if you understand how Pareto’s Principle affects your profits.

Assess Your Sales Force (Including Affiliates)

• 20% of a sales force produces 80% of the annual results.
• The best 20% of any group is frequently at least 16 times as important as the remaining 80 percent.

Just as major corporations need to manage their employees, you’ll need to identify key performers, support 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 choices about your marketing and advertising strategies. 

Identify Your Top Performing Ads and Marketing Campaigns

• 20% of your promotion will yield 80% of your campaign’s results.
• 20% of a marketing promotion will generate 80% of the responses, etc.

Spot your winning ads, and the placements that produce the top results, then test – test – test, constantly tweaking them to make them even better.

If you’re managing a small, online business, you’ve probably already learned that there are many things demanding your attention at any given time.   One of the biggest challenges you’ll face each and every day is choosing how to invest your limited assets.

Uniform application of Pareto’s Principle will help you grow your business’ productivity and overall efficiency, thus increasing your ROI.

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