It’s common perception that 80% of your business comes from 20% of your clients. This was popularized by the Pareto Principle (also known as Pareto Efficiency).

There’s also another belief that 90% of the web content is produced by 10% of users (“1% Internet Culture Rule”), which is what Google Local Guides hopes to achieve.

However, is there a way to empirically verify this? Certainly!

Example + Tutorial

I fabricated a scenario below. You can adjust the numbers to fit your needs. The goal is to calculate the weighted average.

Weighted Average Explained
Imagine that you get an A in a 1-unit class and a C in a 5-unit class. Your average grade won’t be a B because the 5-unit class counts for a lot more. It’s more weighty. Get it?

Let’s imagine that you have three types of users — Heavy, Medium, and Light. Their average purchases are in Column B and percent of those purchasers in Column C. Note that you can change Column C to number of purchases and it would yield the same effect (e.g., 14 purchases per year).

sales volume calculation

Using this data, you can see that 23% of your users (Heavy) account for 50.81% of your sales!

Download: Source File

To Calculate:

  • Column D (Weighted Volume): multiply Column B and Column C
  • Column E (Weighted Percentages): divide the weighted volume by the sum of volumes (i.e., D4/D7, D5/D7, and D6/D7 to get E4, E5, and E6, respectively)

Photographers

This is difficult to apply to those who do not have volume sales (e.g., prints / albums) or repeat clients (e.g., family portraits). So, if you’re, let’s say, a wedding photographer, it’s virtually inapplicable, unless you want to get imaginative.

The strategy, however, is usable in all aspects of life. This goes for work, school, recreation, etc. So, it’s not useless per se.

Conclusion

This table allows you to see the sources of your sales volume, which advises you where to focus your resources. For example, despite your Light Users accounting for 32% of your clients, they yield less than 10% of your sales volume.

Remember that business is about maximizing economic value with limited resources.

Sincerely,

Lawrence Chan

P.S. Last week was the Lunar New Year. According to the Asian zodiac, it’s the year of the sheep / lamb / goat. Happy new year!

What’s your new year’s resolution? Comment below!

happy chinese new year

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