Improve Your Decision Making with the 90/10 Rule
Big or small, decision making is difficult, especially for those of us who don’t like ambiguity. Unknown outcomes and repercussions are scary, but no risk no reward, right? Good news, you don’t have to break out the crystal ball to predict the future. Making the right decision comes down to your circumstances and what is right for you, and to know what is right for you is easy. Use the 90/10 rule.
One bad decision can have mighty, long-term consequences. Peter Iredale found that out the hard way.
90/10 Rule
The 90/10 rule is simple. If a decision impacts 90% of your life with a 10% improvement then you shouldn’t do it. You are probably thinking, no duh, that’s obvious. But here’s what I mean.
Say you need a new car and you want to upgrade your current sedan to a truck because you will occasionally need it to move furniture and haul a few 2x4s for home improvement projects. But you will also need this vehicle to commute to and from work every day. Your current car gets 26 miles per gallon, your new truck will get 13, thereby doubling your commuting cost so you can more conveniently move large items once or twice a year.
Is it really worth it to get a truck? No. 90% of the time, or in this case more like 99%, it is a waste and a burden on your wallet for a slight convenience when needed.
That’s a fairly basic example of the rule, but the lesson is powerful. When you have a decision to make that impacts your day to day, think hard about whether it’s worth it.
90/10 in Your Business
This concept is similar to the Pareto Analysis which says 80% of your success comes from 20% of your efforts. It’s the same concept as the 90/10 rule, but in reverse. A Pareto is reactionary, a review of your products telling you which are the highest earners and how much effort went into the marketing and selling of each product line.
But you don’t want to decide what you should do now that you already invested in a product line, you want to know what you should invest your time in money in to have the best payoff. That’s where you can use the 90/10 rule. First, lay out all of your ideas for products and services. Here are a few real life examples from my business to get you started.
Physical
Physical products include:
Commissions
Physical Products
Commissions are the highest per item earners, but also by far the most labor intensive as I have to design, procure materials, build, and deliver each piece. Physical products also take time, but are standardized making the process easier and faster for me to build. These are also generally small items, check out my shop for current offerings. These are worth my time, but are not scalable. Every project or product I have to physically make to earn revenue.
Digital
Digital, or virtual, offerings include
Products, such as plans or guides
Videos
Blogs, such as this
There is no doubt the digital world is saturated with competition. Anything made can be bought, anything written can be duplicated. It’s hard to keep up. But it’s also rife with opportunity. My digital offerings are currently low earners, but their potential is huge. My videos will eventually generate revenue through YouTube ads with the opportunity to be sponsored by brands. My blog enables me to build a relationship with my audience, strengthening those bonds and building a strong offering to companies who would like to sponsor me. They also bring you, the reader, in to hopefully explore more and maybe even purchase an item from my store.
But the best part is digital products do not require as much effort. Yes it is labor intensive to write blogs, to make videos, and to create plans, but I only have to do that one time for every digital item released with an endless lifespan. Over time my cost per item reduces as opposed to physical products which remain constant.
Not to say I am going all in on digital, but the potential to scale my revenue. I’m using the 90/10 rule to think long term, investing now in long term, digital assets which will eventually generate most of my income and allowing me to spend my time on what I want.
So What Now
Considering the two product types, physical and digital, I can continue to spend 90% of my time on physical products, but the growth is low. I know if I make that investment, I am making a decision for a 10% boost in current income while still spending 90% of my time working a day job. Or I can shift, and spending more time on digital products, scaling my future time, growing my income passively to enable my income to grow at a greater rate such that more of my income could be derived from my business with the same time commitment.
For your business, find those areas where you know you can put in effort for future gains. Marketing is an area where an investment today may not result in any changes in the next month or two, but down the line that marketing could gain you new customers, clients, and take your business to the next level. Applying the 90/10 rule in this way is the opposite of the first example, where a decision negatively impacts you for minimal gain, but don’t forget, you can also have a positive impact for minimal effort.
You may not be able to predict the future, but you can think through the impacts to your life and business to make the best long term decisions.