Whether you like his opinions or not, there is one reason why you need to listen to what Tim Ferriss has to say. In his book The 4-Hour Work Week, Tim stresses the importance of adopting Pareto’s Principle (also known as the 80/20 Rule) in everything you do in life. To make it simple – spend the majority of your time focusing on the top 20% of your tasks that give you the most output.
Basically, we need to work smart. For so long, we have been told that “… you need to work more efficiently …”. While there is nothing wrong with being efficient, it doesn’t always mean that the work is effective.
I could spend all day refining a process to write more efficiently on one of my niche websites. At the end of the day, if that site has no chance of ever generating any significant income, then my efficient work is lost. If this were the case, I should have used my time more effectively building a income stream that has more profit potential.
Let’s take a closer look at Pareto’s Principle and the 80/20 rule.
Pareto’s Principle
The Pareto Principle was created based on a math formula by economist Vilfredo Pareto. The calculation revealed that 20% of the population earned 80% of the income, while the remaining 80% of the population earned only 20% of the total income. This same principle was later to be recognized throughout nature as well as in the business world.
Anyone working in IT can attribute that 20% of software bugs or defects typically account for 80% of the problems. It is true. I have witnessed this first hand in my career in the IT industry and I bet you have experienced this somewhere in your life too. Think of your own life and how this can apply and I bet you will be very surprised how accurate it actually is.
The 80/20 Rule
The more common terminology to explain this phenomenon used today is the 80/20 Rule, instead of Pareto’s Principle. Managers today have even adopted this rule of thumb to incorporate into their work environments. Spend 80% of your time working on 20% of the most important tasks.
The 80/20 Rule can also be incorporated into building passive income. How many hours do you spend spinning your wheels online just to make a few bucks? We have all probably been guilty of this in the past. So why not switch gears and focus most of your time on what gives you the most output?
Reviewing the 80/20 Rule in My Passive Income Business
There are several places that I could adopt the 80/20 Rule when it comes to building passive income. Take for example my earnings last month from two different sources listed below.
- eHow – My eHow earnings last month totaled $188.07.
- ClickBank – Surprisingly last month, I earned $195.95 from ClickBank from work I completed over six months ago.
As you can see, my ClickBank earnings were a little higher than what I brought in from my eHow articles. While there are several other factors at play here like the eHow UK site, the numbers tell a story. I generated almost $200 from ClickBank just from selling 3 products. The effort put into building that income was very minimal – probably a total of 3 hours several months ago.
My eHow earnings on the other hand took much more time to build and grow. I estimate that I spent well over 120 hours so far writing eHow articles to earn that monthly income. It doesn’t take a genius to point out where the 80/20 rule is telling me to spend my time!
Other 80/20 Rule Examples
There are plenty of other examples that I could point out where the 80/20 rule can be applied to building and growing my business.
- Writing eHow Articles – Take the top 20% of my income earning articles on eHow and find every possible related keyword to write more articles about. I have actually been doing this for some time, focusing only on topics that have the highest return on my investment.
- Email & Earnings – In the past, I spent at least as much time checking my email and earnings as I did producing content. The results of these behaviors were not generating any income, which is why I have started my earnings diet. I plan to adopt the same principles with checking my email very soon.
- Leveraging More Tools – I am frugal by nature, but there are some times it pays to purchase things that make your life easier. For example, I bought the Micro Niche Finder tool that helps me identify keywords to use in my articles. Leveraging tools like this aligns with the principles of the 80/20 rule.
Final Thoughts
Adopting the 80/20 rule is a way to work more effectively by maximizing the limited time that you have available. Since time is such a crucial component in growing a business, it is critical to your success to adopt some of the principles of this rule. Every small business needs as much help as it can get in order to be successful. Adopting the 80/20 rule is something I will be starting to incorporate into my business model and is one you should consider as well!
Do you believe in the 80/20 rule? How have you incorporated it into your online business or daily life? How effective has it been?
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{ 6 comments… read them below or add one }
I definitely believe in being smart about the way you work, and since listening to Tim Ferris’ audiobook I have realised that there are many meaningless tasks I do do just to fill up my day. I’m still working on getting rid of them.
The problem with a long term passive income is that it’s very difficult to see where your efforts are going to pay off – either you give up to easily or you work too much on something that will never work. It’s impossible to know, so I at least put that wasted time down to necessary experience in the beginning stages.
@Ruth – You are one step ahead of me already on this one. Your point is actually the topic of a future post!
I agree that passive income does take some time to develop and nurture, so it can be a little difficult to know if it is worth your time or not.
Personally, I love what Tim had to say in the 4HWW. Questions for you..”I generated almost $200 from ClickBank just from selling 3 products.” Were these 3 related products on one site or 3 different mini-sites selling the CB product?
Either way, you’re ahead of me. Keep it up!
@Moon – To be honest, I didn’t do a good job of tracking these links last year when I set up the ClickBank income stream. The sales may have come from Squidoo, eHow, or from some articles I have on EzineArticles.
I am doing a much better job tracking items now. But the results made me wonder just how much money I can earn if I really put some effort into it.
Great review. I won the 4HWW Book from the Smart Passive Income Blog by Pat Flynn and began reading it, his insight is incredible. I sat down to read and I was still reading an hour and a half later. I stopped and went to bed, but plan on doing a full book review once I am done.
@DiscipleshipGuy – 4HWW is an excellent motivating tool that I use on myself all the time. I am reading it now for the third time. While I don’t agree with every single point that Tim makes, it really inspires me to keep pressing on.