The 80/20 Guide to Understanding Your Business

Have you ever heard of the 80/20 principle? I only came across it about a year ago, but once I started to understand it, wow has it made a big difference for me.

There is a lot behind the concept of 80/20 (it's also called the Pareto Principle after the guy who came up with it) but I'll boil it down to the basics to make it easy. Essentially, the principle says that 80% of the outcomes is due to 20% of the causes. Here are a couple of examples specifically to real estate: 

20% of your contacts will give you 80% of your business. You might get hundreds of people in your sales funnels, but chances are only a fraction of them will actually become your clients.

20% of your clients will take up 80% of your time. We've all hand those handful of clients who need a lot of attention, they take up far more of your time than the vast majority of your clients.

80% of your contacts come from 20% of your marketing efforts. You might be trying all different types of marketing, but I'd guess you get most of your contacts from just a small percentage of them.

See what I'm getting at? You can really break down the 80/20 of anything. Now, the real key to the 80/20 principle is figuring out what 20% gives you the 80%. That's where the magic happens.

So if 20% of your clients are pains in the you know what and taking up 80% of your free time, maybe you should stop working with them. It's crazy to say, I know, but think about how much more time you would have for marketing efforts, or servicing the clients you really enjoy working with.And if 80% of your contacts come from 20% of your marketing efforts, then it's a really good idea to figure out what that 20% is.

Maybe you're YouTube channel is knocking it out of the park, but you're blog has just a trickle of conversions. Then focus on video and outsource the writing of the blog.

Now, I'm not saying you should kill all your marketing efforts and just focus on one thing, I'm all about having a bit of diversification. But, you need to have a very good understanding of where your time is being spent and what the results of that time is showing you.

So say here are your current marketing efforts with the percentage of leads each brings in and the time it takes to complete monthly:

Facebook: 5% - 10 hours
YouTube: 30% - 3 hours
Twitter: 1% - 3 hours
Blogging: 4% - 10 hours
Newsletters: 15% - 4 hours
Newspaper Articles: 5% - 5 hours
Meetup: 35% - 6 hours
Craigslist: 5% - 2 hours

Now, look at how the 80/20 principle applies to these.

The 20% of marketing activities that work the best are Meetup and YouTube. So instead of doing 8 different marketing efforts focus on the few that are bringing you in results. In this case, it would be your YouTube channel and attending Meetups.

This also applies to hours. When you add up all the time on marketing it's 43 hours, that's a lot of time. But when you look at the two streams that bring in the leads, the hours it's 9 hours, just about 20% of your time.

See how it works?

It's almost like if you've ever tried to go on a diet and kept a food diary. You might have been confused as to why you weren't losing weight when you felt like you were eating relatively healthy. But then, you started keeping a food diary and writing down every single thing you ate for a week. And guess what, I bet the information in there blew you away.

You were probably surprised to see you actually ate a lot more than you thought you did, or that food you thought was "relatively healthy" was actually bad for you. Once you saw everything written down in black and white, it became pretty clear what the problem foods were. And, let me guess, it was probably 20% of the foods you were eating that were causing 80% of the calories.

See what I'm getting at with this?

If you spend some time focusing on where you are getting your clients from, how much effort you are spending on some, and where your transactions come from you're going to notice a lot of patterns. These are the potentials of your 80/20.

From here, you can see where the majority of your time and efforts are going and make decisions from there. When you can see in black and white where you are getting your best return on time and effort investment it makes things much more clear and could make a huge impact on your business.

Imagine being able to have more time to sell and have an exact idea of where you are getting most of your customers from. That would be pretty awesome, right? So goes the power of the 80/20 principle.