The pareto principle chart

The Pareto Principle: How spotting it can give you the advantage

I have a few articles planned but due to some interesting things going on I haven’t got round to publishing them.  However the subject of this one is one that came about just last night in conversation with a mate of mine and one that immediately knew I had to write about.  What I will be talking about here is the Pareto Principle and how if you know what it is and can spot it in your business, then you can use this to your advantage.

The Pareto Principle

If you haven’t heard of the Pareto Principle it is also known as the 80-20 rule and the definition is this:

“The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.” – Wikipedia

I first came across the Pareto Priciple in one of my favourite books “The 4 Hour Work Week” by Tim Ferris (aff link) in which he recommended focusing one’s attention on those 20% of customers who contribute 80% of the income.  Also quite controversially refusing to do business with those 20% of customers who take up the majority of one’s time and cause the most trouble.

The pareto principle chart

What it means for your business

The key here is you see 80% of your results from 20% of your efforts.  However the Pareto Principle can go further than this and can be found in many aspects of your business.  Some of the most common ones I have seen are:

  • 80% of your sales come from 20% of your products
  • 20% of your customers will take up 80% of your customer services time
  • 20% of your efforts will bring in 80% of your returns

By spotting these patterns in your business you can actively monitor them and take action to make sure that your attention is spent on the areas that give you the most benefit.  Making sure that the top 20% products remain in stock, maintaining the sales coming in, or keeping the listing active on the marketplace.  Focus your marketing efforts on the avenues which bring in 80% of your results increasing your time management and working efficiency.

This mini article came about as I said last night I was talking to my friend Nick who is an established Youtube musician who runs his own website/blog over at www.nickguitarify.com and has his own channel on YouTube which you can see here.  (If you’re into music then go check it out)  This came about when Nick realised that a massive amount of his subscribers on his YouTube account came from a small video series he did.  That’s when we got talking about my experience with Pareto in the past and as a result of this he is going to do a second series on his popular feature which brought in a lot of his subscribers.  I have noticed a similar thing whilst running this website and that is that a small percentage of my posts will grab a large percentage of my visits.  Now this may not be exactly 80-20 but it isn’t far off, and doesn’t include days when I post articles.

Take action

So the question is, can you spot the Pareto Principle at work in your business.  If you can, what action can you take to ensure that the areas that bring most of your returns not only continue to do so but increase in their effectiveness.  Likewise can you look at the 20% which are taking up 80% of your time and take action to stop this from happening.  Take a look at your business and let me know if you can spot the Pareto Principle at work in the comments below, and if so are there opportunities for you to increase your efficiency?  Be sure to let me know what you find.

2 replies
    • DaveF
      DaveF says:

      Hey Rambo

      This is exactly what I am talking about with regards to the Pareto Principle. By recognising it, you have the tools available to improve your business.

      Thanks for the comment

      Dave

      Reply

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