Using the 80/20 rule to make more money
The 80/20 rule is an important one in business. Also know as the Pareto principle, the 80/20 rule states that 80% of your sales will come from 20% of your customers.
This rule can be applied to any manor of businesses. In the affiliate marketing world, 80% of your profit might come from 20% of your merchants, or 20% of your websites. In freelance web development, 80% of your revenue might come from 20% of your clients.
What is the point in all of this?
The point is simple. If you can identify the 20% of work that is creating the 80% of your sales/revenue/profit then you can focus more on that 20%. It is all about prioritising the important things, and not doing the unimportant things. By doing more of the things that make you money and less of things that do not, you will make more money! Simple!
A working example
This is an oversimplified example, but it is to illustrate the point. Lets say you are an affiliate marketer and you have 10 websites. Lets assume that 80% of your revenue comes from 20% of your sites. ie, 2 websites are making the 80%. Lets assume you are making £1,000 per week.
On a weekly basis, you split your time equally across the 10 sites. You work 50 hours a week. That's 5 hours per site per week.
So on average, you are making £20 per hour for the hours that you work. On average, you are making £100 per site per week.
Fair enough. But your top two sites are making 80% of your revenue. So they are making £400 each per week. So for the 5 hours you spend per week on each of the top two sites, you are making £80 per hour!
For the rest of your sites, you are making £200 from 8 sites. That's £25 per site per week. But you are spending 5 hours a week on each of these sites. Thats' only £5 per hour! Not so good is it?
Using this logic, if you stopped working on the sites that make just 20% of your income but chew up 80% of your time, you are free to work on the £80 per hour sites. If you spend 100% of your time on these power sites, your weekly income will rise to £4,000. Thats an increase of 300%.
Of course, this is way to simplified, but the moral of the story is, why spend 80% of your time on making just 20% of your profit? It is better to refocus, prioritise and be ruthless in your approach.
This is why I have been very quiet on thie blog. I am desperately trying to focus on the 20%.