The Pareto Principle in Practice


In 1896, economist Vilfredo Pareto observed that roughly 80% of the land in his native Italy was owned by about 20% of the population. This observation came after he figured that roughly 20% of the peapods in his garden contained 80% of the peas the crop yielded.

Pareto’s observations would go on to become known as the Pareto principle, or the 80–20 rule. Talked about often in productivity circles, the principle applies to much more than 19th century Italy. For example, 80% of a business’ revenues might come from 20% of its clients. Further, 20% of the time you spend working produces 80% of the value of your work.

Quite simply, the Pareto principle applies to almost all aspects of business. The sooner you understand that and leverage the concept to the best of your abilities, the more effective your efforts will be.

The Pareto Principle within the Pareto Principle

In his new book 80/20 Sales & Marketing, Perry Marshall proves that the Pareto principle can be taken to the extreme—at a near-exponential clip. We already know that 20% of customers are responsible for 80% of profits. Marshall takes it a step further, arguing that you can apply the Pareto principle within the Pareto principle.

It’s a mindbender, to say the least. To illustrate: Within that 20% of customers is a subsection of 20% of customers who are responsible for 80% of the revenues that the initial 20% of customers generate. (In other words, 4% of your customers are responsible for 64% of your revenue.) And within that second subsection exists yet another 20% subsection responsible for 80% of the revenue that the second subsection generates. (Or 0.8% of your customers are responsible for 51.2% of your revenue.)

And so on.

The takeaway? If you’re able to figure out the customers who represent the smallest 20% grouping of the Pareto principle within the Pareto principle within the Pareto principle—let’s say that 0.8% sliver of customers—you can invest a good chunk of your resources targeting that group and expect fantastic results.

The Pareto Principle & Time

Are you a freelancer? Do you own your own small business and run it as a one-man show? If so, you likely have a number of clients—some of which pay more than others.

Is it that much of a stretch to say that 20% of the work you do is responsible for 80% of the revenue you take in?

To be sure, you tackle every job you can get your hands on. The opportunity to make money is better than the opposite. But instead of taking on low-paying jobs, maybe your time would be better spent searching for high-paying jobs that will eventually become a part of the 20%.

This doesn’t necessarily mean you have to fire your low-paying clients. It does mean that you may want to outsource those tasks—or hire an employee or two to tackle them—so you can focus on generating more revenue.

But you definitely can fire your low-paying clients if you want to. Instead of working on menial work that isn’t really worth your time, you may find that you’re much better off relaxing instead. As an added bonus, your mind will be clear and you’ll be able to focus better on the bigger projects.

The Pareto Principle & Happiness

Generally speaking, 20% of the activities you do in your life are responsible for 80% of your happiness. In other words, 80% of the things you do don’t really provide that much benefit to you.

If you look at your life through Pareto’s lens, chances are you’ll be able to figure out which non-essential activities you regularly engage in that don’t really make you happy. Once you know that, you can focus your energies on avoiding such activities whenever possible. Reinvest your newfound free time in activities that do make you happy, and you should become a more joyful person.

The Pareto Principle & Productivity

Imagine your team is working on a fairly sizeable project that you plan to tackle over the next two weeks. After two days go by, you’ve tackled roughly 80% of the work. There are now 8 business days left to complete the final 20% of the project.

Good news: The Pareto principle can help your team become more productive. You just have to understand when enough is enough. Programmers, writers, and other creative professionals can spend countless hours tweaking their work, with each minor change improving the project ever so slightly. But the added benefits aren’t exactly that tangible to the casual observer.

Applying Pareto’s principle to your team’s workflow should encourage you to constantly solicit feedback from members of your team at regular intervals during the first two days. This will help you ensure you’re able to make meaningful changes during the initial stages of your project—when a majority of the work is done.

If you work an 8-hour day, 20% of your workday translates into a mere 96 minutes. So when you step foot inside the office, be prepared to bust your tail for an hour-and-a-half. As our boy Pareto tells us, 80% of your work for the day will be done. Talk about shortening your day, without compromising on your output.

(Visited 664 times, 1 visits today)