The 80/20 Principle: Let 20% of Your Customers Generate 80% of Your Income

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1 pareto-principleA few years ago I held a seminar in Chicago called “The 80/20 Seminar for Direct Marketing.” To my knowledge, it was the first of such a conference or seminar. It cost $3,000 to attend and I had about 80 people in the room. All of them ran businesses of one kind or another, most of them online. To illustrate the all-pervasive nature of 80/20 or what you might call the Pareto analysis, I said, “Everybody, stand up if you have shoes on.”

Everyone stood. I said, “If you own fewer than 4 pairs of shoes, please sit down.” A bunch of people sat down, and about 50 were still standing.

We were already doing the Pareto Analysis.

“If you own fewer than 8 pairs of shoes, sit down.”

More people sat down, about 30 left.

“If you own fewer than 16 pairs of shoes, sit down.”

Thirteen people, 9 of them women, still standing.

“32 pairs of shoes.”

Three women standing.

Still demonstrating the Pareto analysis, I smiled. “Don’t be embarrassed, ladies. Just tell the truth, cuz I’m illustrating a principle here. How many of you have more than 64 pairs of shoes?”

Two sit down. One left standing. She cringes with embarrassment.

“How many shoes do you have?”

“Umm, about 80.”

“Thank you so much. You can sit down now. Give this woman a hand!”

Everyone clapped. “20 percent of the people own 80 percent of the shoes. Can you see that?” I said. All nodded in agreement. This was a good demonstration of the Pareto analysis.

“Everybody, stand up again—everyone who owns at least, one domain name.” They were all marketers, so it was pretty much everybody.

“Sit down if you own fewer than 10.”

Half the room sits down.

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“Fifty.”

Half again sits down. We’ve got maybe 20 still standing.

“Two hundred.”

A bunch more sit down, 10 standing.

“Five hundred.”

Five people left. I keep going—1,000, 2,000, 5,000.

At 5,000 domain names, I’ve got two people left. At 10,000, one guy sits down.

Mickie Kennedy from Baltimore, one of my best customers, is the only one left standing. “How many domain names do you own?”

“Twelve thousand.”

We demonstrated another Pareto analysis again.

Mickie was a “Domainer,” the domain-name equivalent of flipping real estate. He owned entire portfolios of domain names, some selling for tens of thousands of dollars.

20 percent of the people owned 80 percent of the domain names, and in a room of 80 people, one guy owned nearly half.

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Almost everything is like that, and we all need a good understanding of the Pareto analysis so that we can apply it to our business and increase our income.

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Forbes Magazine says, “Perry Marshall has taken the Pareto Principle to the next level.” – Dave Lavinsky, Forbes, January 2014

“If you don’t know who Perry Marshall is, unforgivable.” – Dan Kennedy, author of No BS Sales Success

“One of the all-time top 10 business books to impact your bottom line.” – Bill Harrison, Bradley Communications

“I thought ‘Oh, I’ve heard this before. Another book about 80/20.’ Shame on me. It’s PHENOMENAL!” – Tony Rubleski, author of Mind Capture

“Perry Marshall is about to blow your mind!” – Michael Gerber, author of The E-Myth

“Best marketing book I’ve read this decade.” –Bob Bly, author of The Copywriter’s Handbook

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Photo Credit: 80/20 Sales and Marketing Figure 1-1

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About the Author

Perry Marshall has launched two revolutions in sales and marketing. In Pay-Per-Click advertising, he pioneered best practices and wrote the world's best selling book on Google advertising. And he's driven the 80/20 Principle deeper than any other author, creating a new movement in business.

He is referenced across the Internet and by Harvard Business Review, The New York Times, INC and Forbes Magazine.

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