8020curve.com: A Real Life Example

Brian Woodruff80207 Comments

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Written by Brian Woodruff

Note from Perry: You can make a LOT more money from your existing list than you’re making right now. The 80/20 Curve shows you how. What follows will force you to THINK, but it’ll be some of the most profitable thinking you do this year. Pay close attention – this is X-Ray vision to higher profits:

Mike is a Planet Perry member with a question about using the 8020curve.com tool in his specific business.

Mike writes:

I do not understand how to read your curve once I put numbers in.

Here is an example:

I invite 300 members to a seminar, I sell them 120 memberships at $10,000
I input it and do not understand how to reads it what it is telling me…

Thanks!

Well, Mike, you have a “Rack the Shotgun” situation.

Chapter 2 of Perry’s book 80/20 Sales & Marketing tells the story behind the phrase. In essence “Racking the Shotgun” is testing the responsiveness of a population. You did this when you made a $10,000 offer to 300 attendees at your seminar.

When you enter this into the 8020curve.com tool, you get this:

8020 curve
Racking the shotgun using Mike’s data

(click the image to see this example live at 8020curve.com)

The pink area represents the money you actually made. It is $10,000 tall and 120 people wide. The area of the rectangle is $1.2 million dollars, which is your total sales revenue from the event. You probably already knew that.

But what about the white area to the left of the pink box? That represents money you didn’t make. There are the people who did not respond to your offer because it was more than they were willing to spend with you. This shape represents the number of people willing to pay something and the height of the shape represents how much each member would have paid – but didn’t, because it was less than your price.

What about the white area above the pink box?

That represents money you didn’t get because the price of your offer was less than they were willing to spend. If you’d had a higher priced option (with benefits to justify that higher price), they would have spent more with you.

Now, before you get depressed thinking you left money on the table, I’m going to tell you – we can get that “lost revenue”. And it’s not really lost revenue. It’s revenue you didn’t get because you only had one offering at this time. By making other offerings at different price points, you will get some of those other areas carved out.

Exploring the Limits

The 8020curve.com site is designed to let you easily explore your data and get some meaningful answers. This is what “Examine a Range of Members” is for.

First, let’s explore the whole curve and see what we are dealing with:

8020 curve
total available revenue

(click the image to see this example live at 8020curve.com)

I told the tool to examine the members by rank from 1 to 300 (all of the members). It says:

“Members 1 through 300 can produce $4,542 to $617,900 each”

This means that 80/20 predicts that if you had an offering at $4542, every single person there would have bought it.

What is "80" and what is "20" for your business right now? Take my 2-minute quiz and I'll show you where you'll get the highest compound interest on your time and money!

It also says that according to 80/20, there should have been one person in the room willing to spend $617,900 with you!

That would be a nice paycheck! The question is, do you have anything of that kind of value to offer? Please realize this does not mean that one person would have paid that much for the $10,000 membership. It means that if you had something that was worth it, 80/20 predicts there was one person willing to spend that much with you.

Predicting Profits

Let me give you one more example of how to ask the tool an important question. This is a question I hope you ask it over and over again. It is “If I had a worthy offering at price point X, how many would I sell and how much would I make?”

Once you tell the 8020curve the responsiveness of the list, these answers come easily. Let’s pick two price points. The first one will be $5000 for a lesser membership, and the second will be $100,000 for an EXTREME membership (whatever that means).

First, the $5000 baby membership:

8020 curve
8020 Predicting Revenue: $5000 price point

(click the image to see this example live at 8020curve.com)

I told the tool to examine the members and “Estimate members’ response to a single event” – namely:

“How many members would respond with output 5000?”

The answer is at the bottom of the screen:

“Predicted response for output of $5,000 is 268 members for a total output of $1.34 million”

Well, that’s about the same as what you got before selling a $10k membership to 120 people. But wait – what if you subtract the 120 who are willing to buy the $10k package and then see how many would have bought the $5k package (rather than buying nothing at all …)

268 – 120 = 148 buyers at $5k

148 buyers * $5000 = $740,000 in additional sales volume

That’s an additional $740,000 in revenue simply by creating an appropriately priced lesser package and marketing it to the same list.

Now what about the EXTREME package? What if you had a package that truly justified a $100k price – too rich for their blood? Let’s ask:

8020 curve
8020 Predicting Revenue: $100,000 price point

(click the image to see this example live at 8020curve.com)

The predicted response for output of $100,000 is 8 members for a total output of $800,000.

Now, some of them might buy the $100k product instead of the $10k product, but still – 80/20 says there’s almost a million dollars on the table.

Conclusion

Once you have your responsiveness entered into the curve using the “Describe Your Audience” part of the tool, you can use the “Examine a Range of Members” to make all kinds of predictions.

Remember you still need to justify whatever price you set. Only your own testing will tell you what the “sweet spot” is when pricing a new product or service.  But once you have established a price, the 80/20 responsiveness curve can help you make some very accurate predictions as to how many you will sell.

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About the Author

Brian Woodruff is an engineer, programmer and entrepreneur.

His greatest skill is bridging the gap between people and technology.

With Perry's support and guidance, Brian built the 8020curve.com web site.

7 Comments on “8020curve.com: A Real Life Example”

  1. Hello Brian,

    Waouaou, I’ve received and read 80/20 sales & marketing yesterday and it’s been a real mindblowing reading!!! A very few books made that effect on me. Rich dad, poor dad, the 4 hour work week and The millionaire fastlane for the moment, and now this one.
    Your 8020 curve presented here is just awesome
    I think I understand how to use it thanks to your very didactic explanations
    I just wanted to thank you a thousand times for it
    Love and gratitude
    Anne from Paris, France

  2. Hi,
    I bought this book. And I and it very interesting. I visited the website and
    The 80/20 website. And it is about this website I have a question
    I am in the Gift Card Business. And I sell them to small business owners with mostly one shop.
    My question is, can I use the Pareto formula to calculate what the average value of a card will be when the price
    Is between 15 and 150 euros

    De variables are:
    Amount of cards the customer buys for a year: That starts at 250 up to 10000 cards for one shop.
    The value that is placed on the card varies between 15 – 150 euro’s
    I would like to know what the revenue stream will be for the small business owner based upon the 80/20 rule.

    I sell the cards as a package with some other additional stuff. Can I make an estimate revenue on
    price differentiation like: Basic costs 500, pro cost 750 and enterprise cost 1000 ?

    Can you help me with that?

    Regards,

    Marco van Damme

    1. Your question isn’t very clear, and you haven’t given enough information to really answer it. But I can tell you this:

      -Large numbers of small orders (left side) compared to small numbers of large orders (right side) will match the 8020 curve.
      -Everyone knows what simple cards are, and also some very complex expensive artistic sophisticated cards also exist. The prices vs. volume of those also match the curve. But the fancy ones will almost certainly be sold in different places to different people for different reasons.
      -If you know the average or median or total you can calculate everything else on the curve.

  3. How to use this tool to evaluate current pricing or value of packages on offer??

    For example, let’s say I have a SaaS product that has 10,000 downloads/trials and 1,000 people spending $50/month. I have another package at $150 with 250 users. How can I use this tool to see if my pricing or value offered is okay by comparing to predicted number able to output?

    Do I need to take the total number of paying customers ($45 + $135 groups = 1,250) and put that number in the number responded and set output to $45? Then I would ask how many should respond to $135 output to get the number.

    OR

    Should I say that 1000 responded at $45, how many should spend $135?

    I hope I’m asking this question clearly. I understand how to use the tool to ask about a new offering but when there is already a second offering it obviously pulls people from the first offering.

    Thanks again and I enjoyed all of Perry’s books and content so far

    1. You should add the two tiers together to get the total baseline. However, whether you do that or not, your answers will be fairly similar.

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