The Pareto Principle

(also known as the 80–20 rule, the law of the vital few)

Wikipedia: The principle was suggested by management thinker Joseph M. Juran. It was named after the Italian economist Vilfredo Pareto, who observed that 80% of income in Italy was received by 20% of the Italian population. The assumption is that most of the results in any situation are determined by a small number of causes.

This principle tends to be a forgotten technique/tool now.

The 80/20 Rule

It means that 80 percent of your outcomes come from 20 percent of your inputs. As Pareto demonstrated with his research this “rule” holds true, in a very rough sense, to an 80/20 ratio. Examples as follows:

  • 80% of a company’s profits come from 20% of its customers
  • 80% of a company’s complaints come from 20% of its customers
  • 80 percent of the difficulty in achieving something lies in 20 percent of the challenge
  • 80% of a company’s sales come from 20% of its products

In a business sense, finding the 80/20 ratios is crucial for maximising performance. Find the products or services that generate the most income (the 20 percent) and drop the rest (the 80 percent) that only provide marginal benefits. Spend your time working on the parts of the business that you can improve significantly with your core skills.

Now this can also be applied to our time. Business owners, leaders, managers (you can even apply it to your home life) waste a lot of time working IN the business. Meanwhile, they forgo the activities that earn £1,000 an hour, such as sending the right email to the right person, creating the next marketing sequence, or convincing a client to do more business with them, the time spent working ON your business.

We don’t realise the same 80/20 principle (the adage that 20 percent of customers equal 80 percent of sales) applies to every dimension of business. And that includes time management.

We are extremely prone to rationalise, “I can do it myself.” Then we spend six hours trying to extract a file from an email, fix a projector, doing accounts, generating a spreadsheet, etc. Now we may be competent in doing this, but we come back to the working IN your business instead of the No.1 job in getting and keeping customers, the working ON your business.

So the 80/20 rule can be applied to most things, don’t lose sight of it, keep it in the forefront of your mind when you’re looking to solve the problems around you.

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