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 recruitment market
- Its 90% revenue comes from B2B and 10% comes from B2C
- It’s one product (resume database) generates 57% of the total income
Can you see some imbalance in the numbers here? Answer to this question prompted me to write about 80-20 principle. Lets 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% 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 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 lets 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 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
Setup 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.
Just focus on these data points and allocate 80% of your time to improve them. Idea is to focus more on what is already working. You can also dig deeper into your products or services page and find out which item is getting more traffic.
If getting data from Google Analytics sounds little technical, you can take help of your developers or the web design company who 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 really need all that stuff?
In my experience, following 20% of these tips gives 80% of the results when it comes to ranking well on Google:
- Include keyword in 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 few simple steps. Its very easy and give you instant results.
I ignored SEO for ProfitBooks during initial years which made us virtually non-existent. Once we started ranking higher on Google, website traffic increased exponentially and now there is 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 minimum budget. More and more business are choosing content marketing over paid marketing.
(Image source – Hubspot)
A good inbound marketing campaign involves regular blogging, posting content on SlideShare, 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 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 really 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 Quora and Tumblr 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
I’ve seen 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 Tumblr has a niche fan following. You should invest your time only on the community that matches your customer persona.
For example, if you are selling to young customers, Tumblr is where you need to go. Similarly, if you are offering business services, LinkedIn will give you maximum results. It’s really 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 on 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.
At my 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 under-performing 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 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, a very few people seem to understand it. I’ve come across lots of misapplications and confusions sprouted throughout the web and in print. Some of these errors are due to not understanding what the rule means. Lets look at couple of these misconceptions:
1) Its always 80 + 20 = 100
I’ve seen people creating a pie chart showing one fifth part as 20% and remaining as 80%. This plain calculation undermines the true essence of 80/20 rule. 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 80/20 rule, eventually I will end up with nothing
As mentioned in point #1, application of this rule is not totally mathematical. We have limited time and its not possible to complete every task that we have on our plate. So, using this rule, you can pick top 20% tasks that produce the most results and later spend remaining time on 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 its less important, everything needs to be done. I totally agree but I’m suggesting to stop reading mails just because you spend lot of time on it. Time is a valuable resource & your goal should be to optimise it. So, if Sales meetings aren’t contributing much to sales, have shorter meetings.
Conclusion
The 80-20 rule is powerful, and you can use it to save costs and improve productivity. In practical scenarios, distribution might be 70-30, 90-10 or even 60-3, but try to understand this imbalance and find opportunities to benefit from it.
Do you currently use the 80-20 Principle in your business? I’d love to hear your thoughts in the comments section.
Signup With ProfitBooks to Manage Your Finances With Minimum Efforts
Top 12 FREE Software For Small Businesses
This imbalance does exist. There are few really good books that explain 80-20 rule in detail.
If you try to understand it, you can apply it not only in business but also in personal life
I do not find any substance or logic in 80-20 rule. It seems to be a hollow or theoretical or imaginary concept.