Are you familiar with the 80/20 Rule, often referred to as Pareto’s Rule? Vilfredo Pareto, an Italian economist in the 19th century, was directed by the King of Italy to determine the distribution of the country’s wealth. Through Pareto’s tedious analysis he determined that:
20% of the Italian population
80% of the country’s wealth.
20% of the country’s wealth was
controlled by 80% of the
This observation can be applied to many facets of business and life. But buyer beware, this formula doesn’t apply all the time. So use it with a dose of your own analytics.
Here’s where the 80/20 Rule often works:
– 80% of the time you wear only 20% of your clothing. That’s a lot of clean shirts sitting there, unused. Hopefully your undies get a little more rotation.
– 80% of your revenue comes from 20% of your customers. Check out your accounting, you may be surprised to find this true. Maybe it is time to try bringing in more clients like those in the 20%.
– 80% of the time you drive the same 20% of all roads you have ever driven. This is also called “the commute.”
But here’s where the 80/20 Rule often falls short:
– 80% of your success comes from 20% of your efforts. While small moments can yield huge results, it is the combined package of everything you do that yields success.
– 80% of your profit comes from 20% of your customers. While the top line is affected by your customer base, you control the flow of every penny. Your profit is greatly dictated by your spending. You have the ability to turn every client into a profit center, or fire the ones that aren’t benefiting the bottom line.
– 80% of your colleagues are working 20% of the time. If this is your situation, you have only one person to blame… yourself. Inefficiencies among staff are a result of poor systems and poor leadership
The 80/20 Rule is practical, powerful tool and can be used to get generalizations about how many parts of your business and your life. Just make sure to avoid using it as a hard fact. Do the analysis behind the rule to see where you really stand.