How To Use Pareto’s 80-20 Rule To Grow Your Business

Recently, I was reading about an Indian IT company InfoEdge’s monthly performance report. This company is behind many popular businesses such as Naukri, 99acres, Zomato, and PolicyBazaar.com. While reading the report, I noticed an interesting point. Just take a look at some numbers for Naukri.com :

• This one site takes 68% traffic share in the recruitment market
• Its 90% revenue comes from B2B and 10% comes from B2C
• It’s one product (resume database) that generates 57% of the total income

Can you see some imbalance in the numbers here? The answer to this question prompted me to write about 80-20 principles. Let’s see what it is and how you can use it to grow your business.

 

So, what is the 80-20 rule?

According to the 80/20 rule, roughly 80% of the effects come from 20% of the causes in most events. Put simply, 80% of the outcome of any activity comes from 20% of the total efforts.

This rule is also known as the Pareto Principle or Law of Inequality. It was first discovered by Italian economist Vilfredo Pareto. He observed that 80% of the land in Italy was owned by 20% people. Similarly, 20% of people held 80% of the total wealth.

If you own a business, you might notice that 80% of the sales come from 20% of the customers, or 80% of the sales are made by 20% of the staff. CNN once reported that 80% of errors and crashes in Microsoft products come from 20% of the bugs. This distribution might be a little different; it could be 90-10 or 70-30 in some cases, but the fact is, this inequality exists.

So, let’s see how we can use the 80-20 rule while setting up our goals for our business. I’ve picked up 5 areas where we spend our time most.

1) Increase Website Traffic

The ultimate goal of any business is to attract more eyeballs and generate more leads. In the case of companies that sell products or services online, their website is the only source from where the customer gets to know about the business. For others who have affiliates or partners, the company website still generates around 80% of the total leads.

Everyone is happy when leads flow consistently but let’s try to dig deeper. Google Analytics is a great tool that tells us about our website visitors. You can spend some time learning how to use it and get some really useful insights. The tool will help you amplify your marketing efforts.

The above screenshot taken from ProfitBooks’s Google Analytics account shows that almost 75% of our traffic came from search and direct visits in 2014.

Honestly, our efforts were equally distributed over all the channels. Our team spent equal time on social media, getting referrals, A/B testing, SEO, and others. So, the 80-20 rule tells us we should spend more time on SEO than other channels, like social media and paid display advertising.

How to apply this to your business

Set up Google Analytics for your website and start monitoring the ‘Acquisition’ section. Find out the top three referrers who are sending traffic to your website, the top keywords and search queries that are getting maximum impressions, and the top campaigns that performed well.

If getting data from Google Analytics sounds a little technical, you can take the help of your developers or the web design company that manages your website.

2) Search Engine Optimization (SEO)

A lot has been written and said about how to optimize your site for Google and other search engines. There are dedicated websites that talk only about SEO techniques. In-depth guides and numerous books are available on this topic. But do you need all that stuff?

In our experience, following 20% of these tips gives 80% of the results when it comes to ranking well on Google:

• Include the keyword in the page URL, title, and meta description
• Include two or three inbound and outbound links
• Write at least 1500 words of original content
• Use a good content management system that organizes the site pages and folders neatly so it becomes easy for Google to index it

How to apply this to your business

Use WordPress for blogging or creating your business website. Install the plugin WordPress SEO by Yoast, which will show you how to optimize your content for SEO with a few simple steps. It’s very easy and gives you instant results.

We ignored SEO for ProfitBooks during the initial years which gave us practically zero online visibility. Once we started ranking higher on Google, website traffic increased exponentially and now there is a continuous flow of leads.

3) Content Marketing

In 2006, marketing software provider – HubSpot virtually invented Inbound marketing and since then it has become an indispensable activity when it comes to promoting your website with a minimum budget. More and more businesses are choosing content marketing over paid marketing.

(Image source – Hubspot)

A good inbound marketing campaign involves regular blogging, posting content on your websites, creating infographics, publishing on LinkedIn, writing guest posts for popular sites, and so on. For starters, it can get overwhelming. Even if you hire a company to do this for you, a considerable amount of time is required to monitor the efforts and track the results.

How can we apply the 80-20 rule here? Let’s go back to Google Analytics.

The Social tab from the Acquisition section will show you which content is getting shared the most and fetching a high number of clicks. The Landing Pages option in the Search Engine Optimization tab will show you which blog posts are performing well.

This way you can find out if it was worth creating that infographic that was shared only 29 times or creating that presentation on SlideShare that was only viewed 135 times or maybe that guest post that only fetched 12 clicks after it was published.

How to apply this to your business

Carefully observe the acquisition data and just focus on the top one or two things that worked for you in the past. If it’s a blog post on a certain topic that is still getting consistent traffic, then you should write more on that topic. If Facebook is a top referrer and Medium and Pinterest are at the bottom, stop spending time on those networks. Yes, you can even go ahead and delete your company’s Instagram account if that has not generated a single sale last year.

 

4) Social Media

We have observed that many businesses that open an account on every available social network out there. Then they post the same content on all those networks. Every popular social network like Facebook, Twitter, Pinterest, or Instagram has a niche fan following. You should invest your time only in the community that matches your customer persona.

Social media platforms are very important key tools in marketing your business if used wisely will help you build a personal relationship with your customers.

For example, if you are selling to young customers, Instagram is where you need to go. Similarly, if you are offering business services, LinkedIn will give you maximum results. It’s not mandatory to have a presence on all of these sites. Go for two-to-three sites that are used by 80% of your target customers and prepare the right social media plan.

How to apply this to your business

Automate your social media posts with tools like Hootsuite. The free plan lets you manage up to three social profiles, and you can schedule posts for the future. We use their “Suggested Posts” feature on our Twitter account to schedule and share popular content related to our business. You can spend 20 minutes every Monday and schedule posts for the entire week.

Find out popular hashtags that are trending and post using those tags to get maximum visibility. It saves a lot of time, which can be used to improve other top-performing areas of the business.

 

5) You and Your Team

This one is the toughest, and even a little controversial. But once you apply the 80-20 rule here, it can help you save costs and increase profits.

If you observe closely, we perform only one or two important activities daily that give us a sense of satisfaction. If we fail to complete those activities — even if we work for eight hours — we feel that the day is wasted. So, identify those activities and focus only on them first. If it’s about preparing a quotation for an important customer, then don’t check emails or answer phone calls until you finish that work.

In our organization, we noticed that 80% of the development work was done by 20% of developers. These developers are rockstars, work with total ownership and produce almost error-free code. We made a tough decision and asked some of the underperforming employees to leave. We did not lay off 80% of the team, but reducing the team size by 40% did not cause any significant impact on output. After a little hesitation, we did the same for the sales team and were able to save significant costs during this exercise.

We normally neglect these things when sales are rolling. But when they’re not, applying the 80-20 rule can help you.

How to apply this to your business

First, work toward organizing your day using the 80-20 rule. Use the Weekplan app to write down the top two-to-three tasks you need to perform each day. If there are more tasks, shift them to the next day. Once you complete tasks in the “Today” bucket, you can move toward other tasks for the next day.

Then, closely monitor activities performed by your team. Explore an option to outsource some of your work using oDesk or eLance.

Misconceptions about the 80-20 rule

Despite the popularity of the 80/20 rule, very few people seem to understand it. We come across lots of misapplications and confusion sprouting throughout the web and in print. Some of these errors are due to not understanding what the rule means. Let’s look at a couple of these misconceptions:

1) Its always 80 + 20 = 10
I’ve seen people creating a pie chart showing one-fifth part as 20% and the remaining as 80%. This plain calculation undermines the true essence of the 80/20 rule. The important thing to remember about the rule is, it states the imbalance and it could be any ratio. You might find it as 60/3 if 60% of results are caused by just 3% of total efforts.

2) If I keep applying the 80/20 rule, eventually I will end up with nothing
As mentioned in point #1, the application of this rule is not mathematical. We have limited time and it’s impossible to complete every task we have on our plate. So, using this rule, you can pick the top 20% of tasks that produce the most results and later spend the remaining time on the less productive 80%.

3) I just can’t eliminate any of the stuff that falls in 20%
When I talk about this rule to my friends, they often tell me that they can’t ignore any task just because it’s less important, everything needs to be done. I agree, but I suggest stopping reading emails just because you spend a lot of time on them. Time is a valuable resource & your goal should be to optimize it. So, if Sales meetings aren’t contributing much to sales, have shorter meetings.

 

Conclusion

The 80-20 rule is powerful; you can use it to save costs and improve productivity. In practical scenarios, the distribution might be 70-30, 90-10, or even 60-3, but try to understand this imbalance and find opportunities to benefit from it.

This 80-20 rule is very effective to understand how you should allocate your efforts. As a business owner, there are a lot of parameters you need to look after one such parameter is accounting. this is a time-consuming as well as capital-consuming sector. This is where ProfitBooks can help you better allocate your efforts.

ProfitBooks is made with business owners in mind, hence it has an easy-to-use interface, you can use even without experience in accounting. We also have a “forever free” plan for startups and small businesses. This will not just save you time but also capital.

Visit our website and sign in your business today.

Do you currently use the 80-20 Principle in your business? I’d love to hear your thoughts in the comments section.

 

FAQs

Is 80-20 a good investment strategy?
No, the 80-20 rule or Pareto Principle is not a good investment strategy on its own. While it can be useful in identifying key areas for focus and optimization, it does not take into account important factors such as diversification, risk management, and long-term growth potential. Successful investing requires a well-rounded approach that incorporates a range of strategies and considerations.

 

What is Warren Buffett’s 70-30 rule?
Warren Buffett’s 70-30 rule refers to his advice for individual investors to invest 70% of their money in a low-cost S&P 500 index fund and 30% in U.S. government bonds. This strategy is designed to provide a balanced approach to investing, with the stock index fund offering exposure to the potential growth of the stock market and the bonds providing a lower-risk option for stability and income. Buffett has long been a proponent of long-term, passive investing and believes that most individual investors would be better off following this simple strategy rather than trying to beat the market through active trading or stock picking.

 

What is the best example of the 80-20 rule in productivity?

The best example of the 80-20 rule in productivity is that 80% of your results come from just 20% of your activities. This means that by focusing on the most important tasks that contribute to the majority of your desired outcomes, you can increase your productivity and efficiency. For instance, if you’re a salesperson, you might find that 80% of your sales come from just 20% of your clients, so you should focus your efforts on those key clients to maximize your sales productivity.

 

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