The Pareto Principle: How 20% of Your Time Impacts 80% of Your Business
Do you ever feel like you spend the majority of your time and energy on things that don't seem to contribute to your bottom line? Imagine for a moment if you were freed up to spend the majority of your time focusing on those things that bring massive impact to your business. How much more effective, passionate, and fulfilled would you be?
The Pareto Principle, or 80/20 rule, addresses just that. Better known as the "vital few and trivial many," the 80/20 principle states that 80% of consequences stem from 20% of causes. Understanding the psychology and implications of the Pareto Principle can help your business tremendously – and can be applied to nearly every part of your business and personal life. Let's break down the principle, its history, and how you can use it to your advantage.
The History of the Pareto Principle
To truly understand how the Pareto Principle applies to business and life, it's beneficial to take a step back in time. The Pareto Principle takes its name from Vilfredo Pareto, an Italian sociologist and economist who developed the principle in his economic inequality research across different countries. In his study, Pareto observed that 20% of the population in Italy held 80% of the property and noted similar results across multiple countries.
After his research, Pareto concluded that this distribution was not at all random – it could be applied to nearly everything, from land ownership to wealth distribution. However, despite being relevant for decades, it really took off in the 1950s and '60s after management theorists adopted it.
Today, we see this principle applied to nearly every facet of life – from business to sports. In fact, many athletes claim that they use the 80/20 rule when choosing what to focus on during training and games. Once understood, it's not hard to see why this principle can be so beneficial!
The Pareto Principle Explained
In a nutshell, the Pareto Principle states that a small percentage of events or efforts cause most results. This holds true across all different types of activities – from business to science. For example, 20% of your clients can account for 80% of your revenue in business. Similarly, 20% of your time can account for 80% of the results you generate.
Understanding how this phenomenon works and why it's important can help you master your business and ensure you're focusing on the right things at the right time.
The Pareto Principle in Action
Take a look around, and chances are you'll start to see the 80/20 rule at work everywhere in life and business. For example, take your daily to-do list. If you were to analyze the time you spend on different tasks throughout a given day, you would probably find that some activities take up more of your time than others. You might also notice that those same activities contribute far less to your overall results.
By reviewing your daily activities through this 80/20 filter, you can easily see which tasks are most valuable to the success of your business. Take note of the time you spend on these activities to ensure they're getting enough attention in the future. This simple review will help you focus more on the vital few and trivial many, allowing you to spend less time on tasks that don't contribute to your bottom line.
How the Pareto Principle Impacts Business Effectiveness
Though the Pareto Principle seems obvious, it can be challenging to fully understand its implications for running a business. Fortunately, several easy-to-understand examples help illustrate how the principle works and why it's beneficial. Take a look at the following ways that the Pareto Principle works in everyday business applications to see how it can revolutionize your operations:
Pareto & Customer Satisfaction
One of the most common examples of explaining the Pareto Principle in business is customer satisfaction. Some customers are more likely to complain or leave a review than others. Identifying these customers and prioritizing your time accordingly can allow you to focus on improving the experiences of your happiest clients, increasing their loyalty and the likelihood of future purchases.
Pareto & Productivity
Another common example is using technology to increase productivity. For example, 80% of a business's overall revenue could come from 20% of clients. Those clients may require different processes and applications than other customers – which means these changes would dramatically impact revenue and profitability if introduced across all customers.
In this situation, it would be prudent to create a new system that caters specifically to those high-revenue/high-profit customers. Doing so would increase productivity and profitability, allowing the company to better serve these stakeholders and achieve their goals faster than before.
Pareto & Revenue
The most common example used when explaining the Pareto Principle in business is related to revenue. Some customers are more likely to generate revenue than others. Identifying these high-value clients and ensuring they're receiving the best possible service can allow you to focus on selling your low-value/low-revenue clients, increasing their loyalty and the likelihood of future purchases.
The same goes for products. 80% of your revenue could come from 20% of your products. Once again, it's essential for business owners to know which items are the most valuable in order to focus their attention on the right things.
Pareto & Team Effectiveness
A business owner who uses the Pareto Principle to identify their 20% most effective employees and increase their productivity will see far more success than someone who tries to apply these principles across all employees. When applying this principle, corporate leadership needs to prioritize the needs of top-performers in order to achieve desired results. For example, a business owner might review the performance of their staff and discover that 80% of revenue is coming from just 10% of employees. To achieve desired results, they should focus on those top 10%.
However, the remaining 90% may not be as high-performing as those in the top 10%, so the business owner should ensure they continue to meet expectations. If this isn't an option, their tasks will have to be reassigned or cut so that the bulk of the company's resources are focused on those employees who are actually making a difference.
How to Apply the Pareto Principle in Your Business
As you can see, the Pareto Principle can play a significant role in helping you identify exactly what matters most to your business and how you should be spending your time. But why should this principle only apply to corporate leaders? As a business owner or entrepreneur, the Pareto Principle can be applied to your everyday life to help you increase productivity and maximize your results. In fact, there are several ways that you can apply this principle to your business and day-to-day tasks:
1. Identify the 20% of tasks responsible for 80% of the desired result.
For example, if you wanted to run a marathon, it would be highly counterproductive to spend 80% of your time training for the event by running 10 miles. Instead, you should identify which exercises and workouts specifically target the muscles necessary for optimal performance and focus the majority of your efforts on those.
2. Identify the 20% of tasks responsible for 80% of your stress.
A lack of focus can lead to stress, so it's important for you to know which tasks are the most difficult or demanding. Identifying these time-consuming or problematic responsibilities will allow you to delegate them to others who aren't experiencing as much pressure, freeing up your time to focus on more critical tasks.
3. Spend time with the 20% of people that are responsible for 80% of your success.
Your closest friends, business partners, or inner circle can be key contributors to your success. Make sure you're spending enough time with them in order to gain perspectives and knowledge from these high-value relationships.
4. Spend time on the 20% of tasks that drive 80% of your life's goals.
It's important for you to pinpoint the 20% of tasks that will have the most significant impact upon your future success and spend a majority of your time doing those things – even if they're difficult or unpleasant.
5. Spend time with the 20% of people that contribute 80% to your happiness.
Who are those few people that always seem to bring you joy and peace? Make sure you're spending time with them as often as possible.
6. Spend time on the 20% of tasks that produce 80% of your desired outcome.
Identify which actions or decisions will produce the most significant results and focus on those, rather than wasting time on tasks that won't have as much of an impact.
7. Spend time doing the 20% of tasks you enjoy most, even if they don't contribute to your desired result.
Don't spread yourself too thin! Make sure you are spending a majority of your time doing things that you enjoy, even if they don't produce the best results. This is how you can unlock your greatest potential and excel to new levels.
Put the Pareto Principle into Practice with 137 Awareness
The Pareto Principle is one of many ways that you can make better decisions when it comes to allocating your time and resources. In order to put the Pareto Principle into practice, however, you need to know exactly what matters most in your life and how you should be spending your time every day.
At 137 Awareness, we are committed to helping business owners, entrepreneurs, and corporations increase their effectiveness and maximize their potential through targeted business tactics and proactive, innovative services. Using techniques such as the Pareto Principle, you can spend your time doing the things that matter most to you and increase your productivity dramatically.
