You’ve likely heard of the Pareto Principle, whether you know it by that name or not.
The Pareto principle, also known as the 80/20 rule, was one of Vilfredo Pareto’s most noteworthy theories, which found that 80% of outcomes often come from 20% of the related inputs.
Pareto was an Italian economist in the 19th and 20th centuries who helped develop modern economics as we know it today.
The Pareto principle is an analytical tool to help organize thoughts and develop solutions to business and consumer problems
As a whole, the theory suggests that many aspects of life are not distributed evenly. The Pareto principle is also referred to as the “vital few” and “useful many.”
The 80/20 rule is a great decision-making tool to help optimize resource allocation for a business. It helps organize the thought process and make much more educated decisions.
Project managers know that 20% of the work consumes 80% of the time and resources. That 20% is made up of the first 10% and the last 10% of the project.
Here are some other examples of the Pareto Principle at work:
- 80% of a company’s revenues are generated by 20% of its customers
- 80% of the work in a group project is done by 20% of the group
- 80% of quality issues impact 20% if a company’s products
As the opposite rule:
- 20% of investors provide 80% of the funding
- 20% of employees use 80% of all sick days
There are a nearly unlimited number of examples that we tend to apply the 80/20 rule to in our personal and working lives.
Here are several ways that the 80/20 rule can be used to enhance your own productivity or that of your business:
✅ Complete the top 20% of your To Do List. Chances are that they are tied to your most important issues. Crossing this off will generate the most significant results
✅ Understand the 20% of your customers that make the bulk of your revenues and invest your time in understanding, identifying and qualifying similar customers
✅ Regularly evaluate the 80% of your customers that generate 20% of your business and identify opportunities to shed them for customers that drive better results
✅ Use the 80/20 rule to evaluate your workload. You might find that a disproportionate amount of your time is spent on trivial activities such as administrative work what can be easily and inexpensively outsourced.
Pareto’s principle is a useful construct when analyzing efforts and outcomes. It’s valuable when applied to a list of tasks or goals. It can provide a useful framework for addressing many problems.
I challenge you to spend some time this week thinking about how this principle could completely transform your business.
Let me know what you discover!
About Susan Giddings Business Consulting and Coaching
At SGC, we help our clients implement strategies that provide them with increased revenue and profitability and a business that actually works FOR them.
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