Have you heard of the Pareto principle?
According to Investopedia, “the Pareto Principle, named after esteemed economist Vilfredo Pareto, specifies that 80% of consequences come from 20% of the causes, asserting an unequal relationship between inputs and outputs.” The Pareto Principle is also known as the 80/20 rule.
In other words, the 80/20 rule illustrates that not all things are equal, and the minority owns the majority. For example, 80% of your income will come from 20% of your customers, or 20% of your employees will drive 80% of sales.
I love this principle because it allows you to concentrate on what is working and best use your resources. It would be best to spend your time targeting and supporting your 20%, so they continue to grow. Spending money and time on the 80% may prove futile because it won’t generate the results you hope. I have tested this principle many times in my business, and no matter how many resources I deploy trying to change or motivate the 80%, it is still the 20% that does the majority of the sales. We often don’t have enough time and money to reach everyone, so instead of spreading yourself too thin, focus on the 20%. If you don’t and lose one of your top salespeople or clients, it can drastically affect your sales.
Some proven Pareto Principles in society per Wikipedia:
- In 1886, Pareto observed that 20% of the population owned approximately 80% of Italy’s land.
- In 1992, the United National Development Program Report showed that global income distribution was very uneven, with the wealthiest 20% of the world’s population generating 82.7% of the world’s income.
- The top 20% of earners paid roughly 80-90% of Federal income taxes in 2000 and 2006, and again in 2018.
- Microsoft noted that by fixing the top 20% of the most-reported bugs, they could eliminate 80% of the related errors and crashes.
- In baseball, “15% of the players last year produced 85% of the total wins with the other 85% of the players creating 15% of the wins.
- The Dunedin Study has found 20% of criminals commit 80% of crimes.
- It is common to observe that 80 percent of the production volume constitute 20 percent of the SKUs in distribution operations.
