Pareto’s Principle – Five Implications For Internet Companies
The Pareto Principle is relevant to a range of economic and business situations and informs us that nearly 80% of the outputs are derived from only 20% of the causes. This idea is also commonly labeled as the “80/20 Rule” or the “Law of the Vital Few”.
The Law of the Vital Few is named in honor of Italian economist, Vilfredo Federico Damaso Pareto who, in 1906, discovered that 80% of the real estate in Italy was owned by only 20% of the people. Later he realized that a similar unequal relationship applied to other things as well (e.g., gardening).
Note that the 80% and 20% are not definite values; rather, it is simply the unequal allocation that is noteworthy.
1. Individual Implications:
The Pareto Principle encourages you to stay consistently focused on the 20% of the possible daily activities that really affect the results. Given the complexity of prevailing society, and especially the information glut produced by the WWW, it is very easy to become overwhelmed and start putting your attention on things that (even though they may be “screaming for attention”) are not truly important in influencing your business success or your profitability.
Reduce Your “Daily Activity List”
* Of all the items on your “To-Do List,” only 20% are really important.
* Get rid of entries that simply waste time and are trivial.
Concentrate on Your Positives, Not Your Negatives
* 20% of your effort will determine 80% of your results.
* Use technology for those tasks that can readily be automated.
Stay Attentive to the 20%
*Determining the critical 20% helps you spread your time efficiently.
* If problems do come up, and something has to fall through the cracks, make sure it isn’t one of the decisive 20%.
The “80/20 Individual” takes the Pareto Principle seriously and applies its findings to everyday life and everyday choices. S/he focuses on – and takes advantage of – individual strengths.
2. Customer/Product/Service Considerations:
Consider the term “Product” to include both tangible (i.e., physical) products as well as services and understand how the following commonly accepted statistics might impact your business.
Categorize Main Customers & Best Performing Products/Services
* 20% of customers account for 80% of profits.
* 20% of products account for 80% of revenues.
Settle Product and Service Difficulties or Withdraw Them
* 80% of customer complaints center around the same 20% of products or services.
Ignore “customers” that are really just kicking tires and don’t waste your time and resources on products and services that simply reduce 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 pages account for 80% of the hits.
Determine Critical Traffic Patterns
* Generally 80% of your visitors see about 20% of your website pages. (This ratio holds true for both B2B and business to consumer, but may not hold true for pure content sites.)
Check Your Web Traffic Registers
* You’ll observe that a few keywords, search engines & websites give you the lion’s share of your traffic.
The Pareto Principle can help you as you optmize 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 profits.
Evaluate 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 Promotions
* 20% of your promotion will create 80% of your campaign’s results.
* 20% of a marketing promotion will generate 80% of the responses, etc.
Pinpoint your winning ads, and the placements that produce the top outcomes, 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 apply your limited assets.
Regular application of Pareto’s Principle will help you raise your business’ productivity and total efficiency, thus growing your profits.
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