Pareto’s Law – The 80/20 Rule

Applying the 80/20 rule to your business and your life is extremely important.  Look for the 20% of your actions that produce 80% of the results and focus on those actions.  This can be applied to all aspects of your business.  The sooner you apply Pareto’s Law, the sooner your business grows.

Here’s a bit about Mr. Pareto himself to fully understand where he came from…

paretoVilfredo Federico Damaso Pareto was born in Paris, France on July 15, 1848 to Italian father, Raffaele Pareto, and French mother, Marie Metenier. He comes from the exiled noble Genoese family.

His father was an Italian nationalist who fought for the unification of Italy, as opposed to having several separate states. Raffaele’s pursuits lead to his taking refuge in Paris after taking part in the insurrection against the State of Savoy. In Paris, he met and married Marie. Pareto was born under the name Fritz Wilfried. This was later changed to Vilfredo Federico upon their relocation to Italy in 1858.

Pareto grew up to be quite the Renaissance man with credits as an engineer, sociologist, economist, political scientist, and philosopher with some work as a mathematician too. This respectable list of careers started at the young age of 21 where he earned a Doctor’s Degree in engineering. His dissertation was titled, “The Fundamental Principles of Equilibrium in Solid Bodies.” His study of equilibrium would later become the foundation of the Pareto Principle, better known as the 80/20 rule.

However, his studies in economics would not come about until more than twenty years later. He started his career as a civil engineer for the state-owned railway and worked his way up, eventually transferring to the private industry.

In 1893, Pareto worked as the chair of Political Economy for a Swiss university. It wasn’t until 1906, in his late-fifties, that he made his famous observation. He stated that twenty percent of the population of Italy owned eighty percent of Italian land. Three years later, he expanded this idea in one of his books. He showed that the very same principle relates to how wealth was distributed. Again, he showed that twenty percent of the people carried eighty percent of the wealth.

Pareto’s Principle has been further expanded to many other trades. In its expansion, it’s important to note that the 80/20 law is just an observation that shows that most things in life are not distributed evenly.

In business, roughly eighty percent of the results will come from roughly twenty percent of the effort. For example, twenty percent of workers may be doing eighty percent of the work. The 80/20 law applies to almost every aspect of business as well. Another example is that twenty percent of a project will take eighty percent of the time to complete. It works in both directions. While my example above shows that twenty percent of workers do eighty percent of the work, it also stands that twenty percent of workers will cause eighty percent of the problems.

The examples don’t stop there. Eighty percent of problems can be attributed to twenty percent of causes. Eighty percent of a company’s profits come from twenty percent of its customers. Eighty percent of a company’s complaints come from twenty percent of its customers. Eighty percent of a company’s profits come from twenty percent of the time its staff spent. Eighty percent of a company’s sales come from twenty percent of its products. Eighty percent of a company’s sales are made by twenty percent of its sales staff.

It’s a fun principle to toy around with. What’s important, however, is how it can help a business. It’s important to always focus on the twenty percent that matters. Of every task done in a day, only twenty percent probably matter. That twenty percent will probably produce eighty percent of the results. It’s important to focus on the most effective areas by eliminating, ignoring, automating, delegating or retraining the rest, as appropriate.

Hone in on the twenty percent. Identify it. Find its eighty percent counterpart. Figure out how best to manipulate the numbers so that negative aspect is minimized and the positive aspect is utilized.