What is The Pareto Principle or 80-20 Rule? A complete Guide

What is the Pareto Principle?

Definition: The Pareto Principle is a theory that centers on the belief that the majority of results are derived from a minority of sources.

Legend has it the economist first detailed his theory in relation to his garden produce, where he observed that roughly 80% of the peas came from about 20% of the pods.

While it started in a garden, the 80–20 rule has become ingrained in modern marketing and business, with many advocating its use and practicality in all manners of forecasts and strategies.

In doing so, businesses are able to focus on the 20% that actually matters. Therefore, they will save their resources by cutting the losses otherwise spent on 80% of work, which ultimately, would generate a relatively poor ROI.

In PPC advertising, the Pareto Principle is an observation that the metrics in a PPC campaign are not always distributed evenly. As a pioneer in bringing this theory to the world of PPC analytics, PPCexpo is providing an effective way to enhance your campaigns.

Let’s learn about Pareto Principle and Pareto Analysis using an example.

Example of Pareto Principle: How to use Pareto Principle or 80–20 Rule to improve Keyword Research

Are you spending a lot of time on keyword analytics but aren’t getting the results you hope for?

A lot of people in this situation make the mistake of thinking that they simply need to do more. They invest more time, more money, and more effort, believing it will eventually yield results.

The reality is they should actually be doing less.

Keyword analytics is a crucial aspect of digital marketing, which promises a high return on investment (ROI) whenever you are doing it right.

However, just because it is valuable to your overall strategy, it doesn’t mean you need to spend any longer on it than is truly necessary.

This brings us to the question:

Which of your keywords are essential?

To discover that, we can use the theory of an Italian economist, Vilfredo Pareto.

Pareto’s Principle is intrinsically tied to the law of diminishing returns.

This states that for every additional hour of effort, every single worker is contributing less of an impact to the final result. In other words, all that extra investment has a diminishing marginal benefit, so by the end, you will be spending a lot more on the minor benefits.

By applying Pareto’s Principle we can focus on the main contributors, good or bad.

For example, focusing on the top 20% of your keywords that:

• Receive 80% of impressions
• Get 80% of clicks
• Generate 80% of revenue
• Waste 80% of the money

Pareto’s Principle can be applied to any metric.

It can be a challenge to conduct a thorough keyword analysis and determine which of your keywords you should be focusing on, especially for a huge list of keywords.

By applying the 80–20 rule, monitoring keyword performance can become a much simpler task, as you’ll soon be able to find the most significant keywords.

How PPCexpo Use the Concept of the Pareto Principle

The Most Significant Keywords Report from PPCexpo incorporates the concept of the Pareto Principle, which helps marketers identify the most significant keywords in their campaign.

It does this by considering a number of key metrics:

• Impressions
• Clicks
• Cost
• Conversion
• Conversion Value
• Wasted Spend

The Most Significant Keywords Report also includes two important visualizations – the Pareto Chart, and the Change Chart.

Pareto Chart

This chart can help you identify the top 20% of keywords that are contributing to 80% of your ad campaign’s performance.

These keywords will be displayed in the Pareto Chart, while the balance or remaining keywords are aggregated together in the ‘Rest’ grouping.

The horizontal gray line at 80% is the delineation between significant keywords (above), and insignificant keywords (below).

Digital marketers should focus on the keywords above the gray line so that their resources are invested in the most significant keywords.

Change Chart

The Change Chart is a custom chart developed by PPCexpo, from which marketers can glean insights about changes in the key metric values. You can do this by comparing the values for the most recent period with the previous period.

As markets and customer interests’ change, new keywords will come into play, and other keywords that were once high-performers may begin to wane. Staying on top of trends in your keyword analytics is important if you want to continue delivering content and ad copy that resonates with your target audience.

This chart provides a simplified method of identifying keywords that are currently undergoing any positive or negative change. This chart divides your keywords into different sets for both positive and negative trends. Each set will have an equal number of keywords.

In the report, if a negative set has fewer keywords, the total count will be fulfilled from the positive set and vice versa.

It Pays to Focus on the Most Significant Keywords

Your keywords are the building blocks of your ad copy, landing pages, and company website.

Poor keyword targeting can attract unqualified traffic and cold leads that have no interest in what you have to offer. By the same token, conducting thorough keyword research to discover the right keywords is more likely to generate results.

An important thing to be aware of is that keyword research is not a set and forget task – you must continue to research and update your keywords list. It is not a destination, but a journey.

But while it may get a lot of traffic and qualified leads, you can always refine your keyword analytics for a better ROI.

Pareto’s Principle has been helping marketers for decades. As modern marketing incorporates more paid advertising, the same 80–20 rule continues to reap dividends.

With the Most Significant Keywords Report from PPCexpo, marketers can use the visualization charts to perform a more accurate analysis of keyword performance across their ad campaigns. This report filters out the keywords that aren’t contributing much to the overall success of your marketing efforts.

Using this report and Pareto’s Principle, you can improve your campaigns, improve ROI, and save on wasted spend by focusing only on the high-value keywords that really matter.