The Pareto principle, colloquially known as the 80/20 rule, is a principle that business men and women should live by. Why, then, do so few of them know what it is? Here we define what the 80/20 rule actually is, why it's so important, and why you should make it a part of every aspect of your life, not just your marketing strategy.
What is the 80/20 Rule?
The 80/20 Rule is a principal that was proposed by and subsequently named after an Italian economist in 186 by the name of Vilfredo Pareto. He stated in his paper, the "Cours d'economie politique" that 80% of the land in Italy at the time was owned by 20% of the population. This observation was expanded into today's 80/20 rule: 80% of the effects of any situation come from 20% of the causes.
In business, it is usually applied thusly: 80% of your company's profits will come from 20% of your customers. 80% of whatever outlet you're expecting will come from 20% of whatever you put into your project.
Why is it so important?
Using the 80/20 rule allows you to focus your planning in a way that will allow you to maximize profit, production, or any other aspect of your business, with a minimum of effort. Let's focus on the profit example from above.
- 80% of profit comes from 20% of customers.
- It would make sense to focus on making sure that 20% of your customer base is happy before spending resources on the rest, right?
- The same thing can be applied to any situation.
- While it does not always come out to 80/20, the basic concept still applies: there is no 1 to 1 balance of input to output.
How can I use this in my daily life?
This same rule that can be applied to marketing, profit predictions, and many other business aspects can also be applied to time management and other things that you use every single day, whether you realize it or not. 80% of your results should come from 20% of your effort.
It's easy to be rolled into projects around the house that are not going to be largely productive in the end. Sure, you may be able to fix that leak under the sink, but is it really worth the time that you're going to spend? If it takes you 6 hours to fix a problem that would have taken a professional plumber 20 minutes, then you're losing out on that 6 hours. Instead of using 20% of your effort to obtain 80% of your results, you've managed to turn the rule on its head, spending 90% of your effort for only about 10% in terms of results.
One Final Note
It should be noted here that while the 80/20 rule is a great rule of thumb, it is not set in stone. It's a very useful guideline, but it should only be used as such. Do not try to lock everything you do into that 80/20 ratio or you'll find yourself driving for something that is impossible to achieve.
That being said, take a look at the various aspects of your life, and see how they could benefit from the application of such a guideline. You'll be surprised at the amount of extra time and productivity you can obtain with a little change of perspective.