Boost Your Revenue with the Pareto Principle

Have you figured out how to boost your revenue? Is your business recession-proof?

You probably already cut as many expenses as you could. Depending on your business, you may not be negatively affected by the economy. Even if you are not, leveraging the Pareto Principle is a smart way to scale your business.

The Pareto Principle in Business 

The Pareto Principle, more commonly known as the 80/20 rule, is an axiom that 80% of the results occur from only 20% of the causes. Or in this case, 80% of your income is most like coming from only 20% of your offers.

One of the best ways to increase your revenue is to use the Pareto Principle to determine where most of your income is coming from currently and focus on that.

It sounds simple enough, but first, we have to know exactly what’s working and what isn’t. 

The best way to do that is to track everything. From there you look at your data and make a plan for what you can focus on going forward. 

How to use the 80/20 rule to increase your profit.

Step 1: What to Track in Your Business

Your first step will be to decide what you want to track. This will be a little different for everyone depending on your business and what you do on a daily, weekly, and monthly basis. 

A good place to start is to look at income and expenses, products, or different sources of income, and where you spend most of your time. 

If you are tracking where your income is coming from, look at your financial data from 2019 or before.

Was there a particular service that was still in demand? Did you offer a new service that your clients would like you to continue offering? Did you make money selling your own products? Did you earn affiliate or referral commissions? Did you sell equipment or supplies that you had on hand?

Step 2: Expenses vs. Income

Next, look at your expenses related to that income. You’ll have some fixed expenses like hosting your website for example, that you should ignore for the purpose of this exercise. Instead, look at your costs directly related to each source of income. 

For example, maybe you started setting up Shopify websites for your clients. Maybe you purchased your own site to get hands-on training with it.

Or maybe live streaming was more in demand. You purchased new equipment so you could live-stream your clients’ events.

You may also be paying commissions to affiliates or social media advertising to promote your products.

Subtract those costs from the income you’ve made for your net revenue. 

Other sources of income will have little to no expenses. Once you’ve adjusted your income figures to reflect the profit you’ve made, you can start to compare. 

Step 3: ROI on Your Time

Last but not least, look at the amount of time you’re spending to generate income. Maybe you spent four hours researching and learning best practices for Shopify. Or a few days to find the best supplier for a new product. It may take you a full month of working twelve-hour days to launch a new online course. On the other hand, you may be able to put together a short book in a day or two by leveraging content you’ve already created.

Look at the time it takes for each type of product and compare this to the amount of money you expect to make from the launch and going forward. This will help you decide what’s the most profitable way to spend your time. 

With all the information at your fingertips, it will be easy to decide what you can be doing more of, what you could be doing less off, and what you can stop doing. 

Focus most of your time and energy on the most profitable products and income sources. Work on it for the next six months and look at how much your profits have increased, even during difficult times.

This article was originally published on June 22, 2020, and updated on December 13, 2022.

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