I first learned about the Pareto Principle from Tim Ferriss’s life-changing book “The 4 Hour Work Week.” If you’ve never heard of it, it’s a theory created by Vilfredo Pareto when he realized that 80% of the land in Italy was only owned by 20% of the population.
What it boils down to is that roughly 20% of X will produce 80% of the results, good or bad. Sometimes it’s amazing, you create this product that just skyrockets your sales. And makes everyone start doing gladiator-style fights just to work with you.
Other times, it’s a hard pill to swallow. What if you have a regular customer base of 100 loyal people, but 20 of them cause you nothing but misery and make you blow your “stress ball budget” every month? What do you do when you have a realization like that?
The “not crazy” guide to the Pareto Principle
I like the simplicity of the Pareto Principle (note: it doesn’t need to be exactly 80/20. Sometimes is 90/10, sometimes 75/25. Hell, sometimes it’s 51.23/48.77…the point is there’s an imbalance) because it makes me think about the output of effort in relation to results gained.
The problem, though, is that holding strictly to the 80/20 method can put blinders on that make you miss opportunities solely because it doesn’t fit into this rule (or doesn’t fit into this rule yet) so here are some tips for involving the benefits of Pareto without being beholden to it:
Take it as a loose guideline
I don’t like to fall into the trap of seeing everything as imbalanced because it makes me feel like I’ve stifled my creativity, so I try to use the 80/20 method as a loose guideline when I’m creating products: understand that some will be winners, and some less so, but I won’t know which ones work if I don’t try. In my head, it’s better to give everything a shot (with MVPs of course) than to try and have a laser-like focus on only things that will avoid that imbalance.
Understand the lesson behind 80/20
I think the real message behind the Pareto Principle isn’t that we should be strictly worried about which 20% of our products or services bring us the most income or results, but instead realizing that there’s a spectrum of what can define “success.” Maybe that e-book isn’t bringing you 80% of your income, but it took you less than 20% of your allotted work time to write, thereby being a product that was quick to produce, allowing you to dedicate the remaining 80% of your time to other efforts. The e-book still exists, you don’t have much more to do with it. And yet it takes no more of your time to produce or maintain. I’d consider that a win!
Use it to trim the fat from your business
The Pareto Principle does come with some “real talk” truth to it, especially when it’s finding the negative points in your business. If you have a customer base that has 20% of it making you pop the anxiety meds, then it’s time to use that understanding to make some tough choices. Tim Ferriss had this exact problem and fired those customers from his business.
Use it to help celebrate wins
If you take a hard look at your business and realize that you have a product or service that’s been just BLOWING up, then it’s time to focus more effort on nurturing that to gain more sales. Start a new sales funnel solely dedicated to that product, run some ads, promote it on social. It’s a best-seller for a reason, so use it to champion your business.
At the end of the day, the Pareto Principle (or 80/20 method if you prefer) is a good way to discover the imbalances in your business. But don’t let it run your life. Use it as a loose guideline to help streamline your business and you’ll be well on your way to having a successful product line.