The 80/20 Rule – "Pareto Principle", Biggest Secret to Online Success
The 80/20 rule was first developed around the early 1900s, and then was enhanced about 30 or so years later. It is based on the observation that quite often, 80% of the effects come from 20% of the causes.
We see this rule in action over and over again where a small percentage of one thing is related to a large percentage of something else. Using this rule properly combined with honest analyzing of our businesses can help us focus and concentrate on what is important, allowing us to leverage our efforts for greater results.
As examples, 80% of your profits might come from 20% of your customers. While you should always provide good service to your entire customer base, paying special attention to these customers can yield greater results than programs implemented for all of your customers. 80% of your sales might come from 20% of your products. By analyzing the relative performance of your products including other variables such as total revenue, marginal costs, and return on investment you can intelligently decide on the appropriate mix of promotion, marketing, and development.
Most importantly, quite often 80% of your profits are related to 20% of the time that you spend overall. Quite often we do a variety of tasks, some of which produce significantly more profit than others. You can think of your daily tasks as being a mixture where some tasks are worth more than others. Some of your work may be $10 an hour work, some of your work may be $100 an hour work, and some of your work may be $1000 an hour work or more.
By recognizing where you can really add the most value you can identify tasks which are better to outsource or to delegate, and to focus on those areas that are really the most important. This allows you to leverage your time in powerful ways.
The 80/20 Rule
• 80% of the effects come from 20% of the causes
• 80% of your profits come from 20% of your customers
• 80% of your sales come from 20% of your products
• 80% of your profits come from 20% of your work
• Focusing on the most important can yield great rewards
Now let us understand the Tactical Triangle.
The Tactical Triangle
The tactical triangle has three main components, namely traffic, conversion, and economics. The dynamic nature of how one feeds into the next is represented by arrows, and making all of it work well is the leverage of the 80/20 rule.
Traffic represents people visiting your site. Conversions represents the opportunities for some of them to convert into customers as they come to your site. Economics represents running your business. Money from these activities can allow you to buy more traffic, continuing the circle. Ideally, it's an ever-increasing and growing positive spiral.
The next part of the triangle is traffic. Traffic represents the people who are coming to your website. Typically, the more traffic the better. However targeted traffic is significantly better than raw traffic. You want people coming to your site who will specifically act in the ways that you want them to act.
In general, you can break traffic down into two types: free traffic, and paid traffic. Free traffic is often preferable after all who doesn't want something that is free? However to be honest we have to put the word “free” in quote marks. It can cost a fair amount of money and effort to produce “free” traffic.
The next part of the tactical triangle is conversion. Conversion occurs when a visitor to your website does something you want them to do. It can be as simple as signing up for your email list, or it can involve them purchasing products or services. Conversion includes the points where people actually give you money. As such, it is an indispensable part of your business.
No matter how much traffic you get if you are unable to convert them to customers the traffic is worthless.
There are many different components which contribute to visitors becoming customers. The relationship between an Internet business and its visitors is very much like a dating relationship. Think about it. You start off not knowing the person at all, quite often with an awkward introduction. Sometimes this introduction can come from a person that you both trust. This gives the relationship an immediate boost in credibility.
However you do not immediately ask the other person to marry you. Instead, you develop a relationship over time building trust with every step. In the same way an important part of conversion is customer relationship development. For example, quite often the first step in developing a relationship with a brand-new potential customer is to offer them something free such as your newsletter in exchange for their e-mail address. You are asking them for a relatively small thing in exchange for a relatively small thing.
Over time you will be able to build confidence in yourself and in the quality of your products within the mind of the stranger. As time proceeds you be able ask for a greater level of commitment such as buying a small product. Some of these one-time strangers can end up becoming committed customers or even fans. Quite often a small percentage will be willing to buy just about anything you offer even at significant prices.
The final part of the tactical triangle is economics. Economics involves all the things required to actually run your business. This is a place where many people actually fail in that they don't think of their Internet business as a business.
The reality is that an Internet business is a business just like any other business. You need to make sure that it is being run as a real business, complying with all government regulations, taking in more money than you are spending, and much more.
In the world of Internet businesses some of the specifics involve items such as how productive you are, how you create and fulfill your products, general cost controls, and efficient outsourcing.
Managing your business intelligently and consistently taking advantage of opportunities to improve will increase the amount of money you have available to spend to gain more traffic thereby completing the tactical triangle.
As you focus on each of these parts of the tactical triangle and improve your execution in each of these areas you will able to grow your revenue and your business successfully. However, real success is also dependent on really focusing on what is important.