Resources · Optimizing for Power Law

Optimizing for Power Law, Point of Sale

Have you ever watched every test win while the margin went the other way? This story walks through why, one scene at a time, with Bob, 100 fish and a net, when every catch is sold the day it’s caught. It starts with the fish Bob plans around and what a baseline looks like when nothing changes. Then it puts a price on the catch, brings in the investors, adds bait and starts testing. Tested on cost per fish, the bait lands a crowd of tiny fish and the contribution falls. Tested on contribution margin, it climbs.

1. 1Meet Bob: after thousands of casts Bob knows the average fish weighs about 10 pounds, and the 5 biggest of 100 fish carry 59% of the weight
2. 2Cast the net: one cast is luck, the average is steady, and that steady average is what Bob plans around
3. 3Building a profitable business: $250 a cast, $1 a fish and $1.50 a pound at the dock, about $100 of contribution a cast and $10 a fish
4. 4The investors: 36 cents on every dollar over the long haul, and over 100 casts 8 in 10 investors land close to it
5. 5Add bait: bait built for the average fish adds 10% more fish and 25% more contribution, and the investors hand Bob a plan: four times the fish, every fish still earning $4.55
6. 6Pick what to optimize: tested on cost per fish, contribution a cast falls from $125 to $28; tested on contribution margin, it climbs to $1,045

The story runs in your browser. Cast a few hundred more, drag any test, and watch the averages settle.