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How the Pareto Principle Can Help You Grow Your Business

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Vilfredo Pareto was a 19th Century economist and sociologist. He first identified the “law” that was subsequently named after him based on his discovery of a grossly uneven but predictable distribution of wealth in society (it is in fact still present today).

 

The Pareto Principle is more commonly known as the 80/20 Rule after Pareto found that 80% of the wealth of a given population was owned by around 20% of the population. This illustrates a very common phenomena whereby 80% of your results will come from 20% of your efforts. As a business owner this is very important. Why, you may ask?

 

Well, if you look at your numbers you’ll almost certainly find that 80% of your revenue comes from around 20% of your customers (your customers are not all created equal). Also 80% of your sales will come from only 20% of your sales people and even for yourself, 80% of your productivity will come from only 20% of the things that you do each day!!

 

And even more mind boggling is that the 80/20 rule is fractal which means that 20% of the 20% is reaping up to 64% of the rewards. That’s 80/20 squared!!

 

Now is it always 80% and 20%? Of course not, sometimes the split may be 90/10 or even 95/5 but it is very rarely (if ever) uniform.

 

What does this mean for you as a business owner? Well, simple things like as the owner you should be spending most of your time doing the things that have the biggest effect on your business such as marketing, sales, delegation, strategic decisions and the less important tasks, which still need to be done, should be delegated or outsourced. It should also influence how you use your resources – for example which 20% of your marketing is working and bringing you 80% of your new customers.

 

Work that out quickly and then devote a disproportionate amount of your budget to that magical 20%. It may be digital marketing, direct mail, billboards or that chicken suit in the high street!! Whatever, marketing channels are in your magic 20% you can roll out on a larger scale and watch your business grow.

 

If you’ve made 80/20 work in your life, both business and personal, I’d love to hear about it.

 

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