Tag: pareto principle efficiency

Do you ever feel like you’re trying to do it all, and do you then find yourself questioning whether it’s really worth it to put 100% of your time and energy into every single little thing for your business? Well, you should be questioning it: not only can that intense multitasking mindset lead to burnout, it also doesn’t necessarily yield greater results, in life or in business. If you’re feeling skeptical about that, don’t take our word for it; check out a theory put forward by an Italian economist over 100 years ago, and reintroduced in the 1940s: the Pareto Principle, which you might have heard of as the 80/20 rule. This rule, simply put, states that 80% of effects come from 20% of causes – and, although it’s not a concrete law set in stone, it does seem eerily correct a lot of the time. So what does it mean, and how can you use it to help grow your business? 

The History of the 80/20 Rule

While the term “Pareto Principle” was coined in the 1940s, the principle itself was devised by Italian economist Vilfredo Pareto back in 1906. Legend has it, though, that it wasn’t economic data that got him thinking about the 80/20 rule. As the story goes, Pareto, an avid gardener with an inquisitive mind, noticed that 20% of his pea pods produced 80% of his peas, which got him to thinking: could this be a general rule in the world, and could it be applied to economics?

Pareto looked into it, and it turns out that this rule did apply elsewhere: for example, he found that 80% of the land in Italy was owned by 20% of the population; not only that, but, surprisingly, this was true in most other countries and regions as well, which led him to create the theory of “the vital few and the trivial many.” Fast forward to the 1940s, and Dr. Joseph Juran, a quality management expert, came across Pareto’s theory and tested it to see if he could apply it to QA. When he found that 20% of defects generally cause 80% of problems for most products, he recommended that QA teams focus their energy on the most important 20% of issues, which not only led to better outcomes, but skyrocketed efficiency. And so the Pareto Principle, or the 80/20 rule, was born!

The Surprising Number of Applications

While it’s important to remember that the Pareto Principle is a principle, or a trend, and not a magic trick or an unchangeable universal law, it is almost astonishing how many areas this theory applies to. For example, there are some interesting general applications, like:

• 80% of the shoes owned by a group of people are individually owned by 20% of those people.
• 80% of crimes are committed by 20% of the criminals.
• 20% of the healthcare patients in the United States use 80% of the healthcare resources.
• Software engineers spend 80% of their time on 20% of the software’s features.

But there are also many, many ways the Pareto Principle applies to the business world, including:

• 20% of salespeople make 80% of sales
• 20% of people at a company earn 80% of the profits
• 20% of your customers make up 80% of your sales
• 20% of your sales come from 80% of your products
• 80% of customer complaints come from 20% of customers
• 80% of customer complaints are also related to 20% of your products/services
• 80% of traffic lands on 20% of your website pages
• 80% of your social sharing comes from 20% of your social updates
• 20% of the hazards in a workplace cause 80% of the injuries
• 20% of your time and efforts can produce 80% of your results

How to Apply the Principle to Your Business

The last point above, that 20% of your time and efforts generally produce 80% of your results, is probably one of the most famous and universally useful findings of the Pareto Principle, and it should be yet another big clue that multitasking just isn’t worth it. In fact, some studies have even shown that multitasking can reduce productivity by as much as 40%! 

Focusing on the 80/20 rule will help you stop trying to do everything at once, and remind you to direct your time, energy, and money to the things that produce the highest results with the most efficient use of your resources. In other words, the more you narrow down your efforts to the most important tasks, the better your output will be. As bestselling author Ken Kruse points out, “In my research into the productivity habits of high achievers…[I found that] handling every task that gets thrown their way – or even every task that they would like to handle – is impossible. They use Pareto to help them determine what is of vital importance. Then, they delegate the rest, or simply let it go.”

So, using the general 80/20 rule about time and effort is a powerful way to help you and everyone involved in your business focus on what matters most – but how specifically can you do that? Let’s go back and look at a few of the other applications from above and how you can make them work for you:

• 80% of your profits come from 20% of your customers – Take a look and see if this holds true for your business. If it does, you’ll need to find ways to hold onto those very important customers, and get more of them. You should also be aware that, according to the Pareto Principle, not only will 80% of your sales come from 20% of your customers, but 20% of your customers are also more likely to spend 4 times more than the other 80%, so it’s very important that you identify these big spenders! To determine who your star 20% is:

• • • Identify who has bought recently, who buys the most frequently, and who spends the most
    • Figure out how your core 20% found you – for example, which ads did they convert on and which content did they engage with – and make sure to enhance and promote all of it!
    • Get to know your 20% as best you can, perhaps by performing a demographic study, so you can continue to target them.

• 80% of your sales come from 20% of your products –  Take a look at your sales figures: is this true for you? If so, don’t just rely on these bestsellers to sell themselves while you try to prop up your less popular products; work to enhance, advertise, promote, and push the more popular products so you can really make the most of them. In addition, you might even find that some of the 80% of products or services that aren’t selling as well aren’t worth your time, meaning you could discontinue them and actually end up growing your business in other ways by focusing on the more important things. Again, the Pareto Principle is sometimes about letting go!

• 80% of traffic lands on 20% of your website pages – The 20% of pages that get the most views are probably your most important pages – the ones that include vital information on your products or services and the purchasing process. Keeping the 80/20 rule in mind, analyze how traffic flows to your website, and optimize your site so that it is as straightforward as possible for viewers to access your critical pages. Doing so will increase sales, as well as allow your business to grow at a faster rate with less traffic. 

• 80% of customer complaints are related to 20% of your products/services – Customer service is one of the key components of your business, right? There’s almost nothing more important than keeping your customers satisfied, so if you can use Pareto to determine which of your products or services are causing the majority of the problems, you have a better chance of solving customer service issues for good. You can also use the 80/20 rule to figure out which of your customer service staff is associated with the most complaints, so you can focus on how your staff needs to change their interactions with customers.

• 80% of your social sharing comes from 20% of your social updates – Where are all those likes and retweets coming from? Probably from only around 20% of your social media posts, so use a social analytics tracker to find out which are your best-performing updates, then think about what they all have in common so you can replicate that for your other posts!

The above are just a few of the many ways you can apply the Pareto Principle to your business, and see your profits soar as you become more efficient, and learn how to determine which aspects of your business are not performing to their full potential, and how to let go of what’s not so important. Just remember, the 80/20 rule is not a hard-and-fast law, but it is a powerful tool to help you refocus your energies and get the most results from your efforts. That being said, though, more likely than not,  you will find it applies in an amazing number of situations, and using it can have a profound impact on reaching your goals.