I’m a great proponent of the Pareto Principle, more commonly known as the 80:20 Rule. It’s a seemingly universal principle that 80% of the wealth is held by just 20% of the population. That’s what Pareto observed.
For your business, you get 80% of your results from 20% of your effort. 80% of your revenues from 20% of your customers, 80% of your traffic from 20% of your traffic sources. 80% of your complaints from 20% of your customers. The list could go on and on.
Most of us know this principle at the superficial level. But truly understanding it and applying it powerfully can cause dramatic improvements in every area of your business.
You see, the real power of the 80:20 rule is not 80:20, though this does give you tremendous leverage. It’s the fact that you can apply it over and over again to the same area and exponentially increase your impact.
Let’s take your ad campaign as an example, and say that 80% of your Leads come from just 20% of your Ad Spend. That means that your best performing ads aren’t 50% better that your average ad. They’re beating your average ads by 16 times! It’s a 16:1 improvement.
That's why it's good to set up an ad campaign with at least 10 ads and run it to see which ones bring in the most leads. Typically 2 in 10 will outperform the others by a considerable amount.
Track your metrics, hone in on that 20% and improve upon it. The power of the 80:20 rule is that you can apply it again, and again and again, until you run out of numbers.
Here’s how it works. By applying the rule a second time, 20% of your 20% of Ad Spend results in 80% of 80% of your Leads.
Or 4% of your Ad Spend gives you 64% of your Leads. This means that these few ads are outperforming your average ad by 250:1. A huge improvement. Knowing this, you can home in on those ads and forget the rest. Leverage the best.
We could go on and leverage the 80:20 rule again and again until we run out of numbers. But that isn't practical. Honing the 20% is.
Here's what it looks like in practice.
It's not just getting more visitors to your site either. Or leads into your pipeline. It's converting them to customers. That's another place to apply 80:20. We'll look at that another day.