What is the Pareto principle? How to apply the 80/20 Rule in Business?
How much power can a single principle have in your life? What if knowing the ratio between two related scenarios in your life could empower you to make huge, valuable changes? Well, there is such a principle and ratio you can apply to all productivity-related activities in your life. So, what is the Pareto principle? Or, what is the 80/20 rule? Read on.
In this tutorial, you will learn the foundation of what the 80/20 rule is and the numerous ways you can use the Pareto principle to be more strategic and make a bigger impact. The 80/20 rule could mean the difference between mediocrity and excellence for you.
What Is The Pareto Principle Or 80/20 Rule – Overview
In any group of salespeople, the Pareto principle tends to hold true. You have your superstars. These are the few who consistently achieve amazing results. Then there is a large average quality group that still contributes adequately to a company's bottom line.
Then there are the ones whose sales numbers are generally low. These may be newbies or people for whom this is just a side gig. A few might just be rotten salespeople who might be better off in a different career.
The actual percentages may not be exact, but the superstar salespeople probably comprise about 20% of the sales force. A look at their sales figures will likely reveal that they are responsible for generating around 80% of the total sales.
Conversely, the other 80% of them probably only generate a combined 20% of the total sales. One would quickly identify such results as lackluster.
⬆️ This is the Pareto Principle 80/20 Rule in action. ⬆️
Who is it from? Nineteenth-century Italian philosopher Vilfredo Pareto studied numerous companies across a variety of industries. According to a Forbes magazine article but also many other research studies on the 80/20 rule, Pareto’s investigations revealed that:
“80% of production typically came from just 20% of the companies.“
Most of us have experienced such an imbalance of inputs and outputs on some level. In fact, it seems inescapable. A principle like this might leave you wondering which side of it fate finds you on. To view the Pareto principle in such a light is to be a victim of it. On the other hand, there are those who use Pareto to crush it in life. Yes, this is possible.
Examples of Pareto Principle at work
- 60% of distractions come from 40% of sources.
- You wear 30% of the clothes in your wardrobe 70% of the time.
- Out of all the apps on your phone, you may use 40% of them 60% of the time.
- In some companies, 20% of the customers account for 80% of total profits.
- You may only use 10% of the public transportation system where you live 90% of the time you travel.
Keep these in mind as we look at some techniques for using the 80/20 rule to better manage your time and improve your outcomes.
Reading tips: Here are some tutorials to improve your productivity further. or learn how to set goals effectively and develop good habits. Besides that, there are top-rated productivity courses to teach the ins-and-outs to get more out of your day.
How to Apply the 80/20 Rule in Business and in Life
1. Professional Prioritizing Using The LIST Method
A commonly recommended way to apply the Pareto Principle 80/20 rule to your professional life is to make a list of the top 10 things that occupy your time, and then make decisions about how much of your time to allocate to each. It goes something like this:
- List 10 things you spend the most time doing in an average workday.
- Select the 2 things that get you the best results when you do them. (This is the 20%)
- Of the other 80%, deprioritize, automate or outsource them1.
Example List – Sales Job
- Studying product information
- Ordering lunch
- Social Networking
- Preparing sales materials for upcoming appointments
- Cleaning up
- Going through emails
- Taking Reorders
- Sorting samples
Let's select the top 2 tasks that stand for 20% of the input delivering 80% of the outcome.
Set a value for the other tasks: A = Automate, O = Outsource, D = Deprioritize.
The new list3 could look like the one below though you might want to set a different focus.
- Taking Reorders
- Studying product information ➡️ D
- Ordering lunch ➡️ D
- Filing ▶️ O
- Social Networking ▶️ A
- Preparing sales materials for upcoming appointments ▶️ D
- Cleaning up ➡️ O
- Going through emails ➡️ O
- Sorting samples ▶️ O
This has now transcended from being a simple “to do list” to become an action plan for success. The important thing, once you have done this, is to follow through. Hire help for cleaning, filing, sorting samples and emails. Select an app for automating your social networking post; you will need to set aside some time to create and schedule these.
With the rest, decide how much time to spend on the bold items and whether to get them out of the way first. Look for ways to streamline the processes in the deprioritized tasks so you spend a lot less time on them and have more time for the bold tasks. This could be the key to taking you out of the mediocre middle and into the superstar sales group.
2. 80/20 Rule For Personal Use – The QUESTIONING Method
Your personal and professional lives can never be completely exclusive of each other. Thus, it is important to think critically about the choices you make in your private life.
In March 2020, Thaisa Fernandes2 revealed something interesting in an article on Medium. She observed that the 80/20 rule prompts questions in your mind that you might never have otherwise asked yourself.
For example, it may be time to thin out your wardrobe. Out of the 70% of garments you only wear 30% of the time, you could probably dispense with a goodly amount. This may prompt you to ask yourself:
Who do I know who could benefit from some of these nice clothes?
If I do this, could I save time deciding what to wear every day?
There is a great chance to do a humanitarian act here and this could also apply to other household items, such as small appliances, furniture or kitchenware. Considering the examples we looked at above, here are some other questions you might ask yourself:
- Can I reduce my daily time on the phone if I delete those apps that use up 80% of my time but only count for 20% of the benefits of having a smartphone?
- Will my phone work better and faster if I delete some of the apps I use less than 40% of the time?
- Are the people I spend 80% of my time adding value to my life? Are there people in the other 80% I should spend more time cultivating a relationship with?
- If there is a problem on the public transportation route I take 90% of the time, what is my back up plan?
This questioning process is a great way to open your mind to new ideas and strategies. For those parts of your life that you live on autopilot, it can help you get unstuck. Indeed, there may be a better flight plan for you!
3. Strategic Imbalancing Acts: Where To Allocate Resources
The Pareto principle with the 80/20 rule is not just a fabulous time management strategy. It can also help you make smart decisions about the direction and quantity of resource allocation in your professional and private life. Let’s refer again to the examples.
Imagine a manicurist who has a mailing list. Of the people that visit her salon, 80% of them only come for manicures for special occasions. The other 20% get manicures on a biweekly basis. For them, keeping their nails done all the time is important.
While she should treat every customer with courtesy, she should also distinguish these customers in a separate email list and target service customization programs at the 20%. In most businesses, there is more to be gain in cultivating loyal clients than constantly working on getting new ones. 20% of the customers can bring in 80% of revenue.
The 80/20 rule could be useful to public officials as well. Imagine that a study in a municipality revealed that 20% of the population counts for 80% of public healthcare spending. Communities could use their knowledge of this imbalance in a number of ways:
- Officials could incentivize wellness initiatives among the other 80% of the people.
- Health and human services departments could forecast and budget effectively for hospitals and other public health resources.
- Education boards could tailor programs in elementary schools to instill wellness habits in effort to shift the numbers even lower for the next generation.
- In high schools, perhaps introducing nursing or healthcare career programs to prepare for the needs of the 20% in the not-so-distant future would make sense.
Unlike the other two techniques, the primary focus is not changing the ratio. Instead, the focus is on making better and more creative and use of the resources at hand.
4. Pareto Principle 80/20 Rule For Prioritizing Goals
There are a few unique individuals that have one goal in life. They spend their lives pushing towards achieving that goal. For example, I have a cousin who knew when he was five years old that he would grow up to have a career working with dogs. He never wavered (like I did), and now, he runs a successful business training and boarding dogs.
For the rest of us, numerous aspirations dance around inside our hearts. This means that time, attention and resources get divided and some goals may just get starved.
Motivational speaker Brian Tracy applies the questioning technique to goal setting.
His prioritizing goal strategy:
- Write down ten goals.
- Ask yourself: If I could only accomplish one of the goals on that list today, which one goal would have the greatest positive impact on my life?
- Next, pick the second most important goal.
- Once you have determined the 20% of your goals that are most valuable, work at those all the time.
6 Tips To Apply The Pareto Principle 80/20 Rule
Some things to keep in mind as you set out to implement the Pareto Principle into your life:
1. Focus on the 20 all day. Even when engaging in an 80 task is unavoidable, keep your mind on the 20. Reserve the most productive time of your day to focus on that 20%.
2. Become the best. Once you figure out which 20% of what you do produces 80% of your results in your profession and other areas of your life, aim for mastery. Go deep into those. Use deep work strategies to give those projects your undivided attention.
3. Be deliberate. Taking advantage of this law of imbalances of inputs and outputs will not happen by accident. Take the time to write and strategize. Wrap your head around the idea that some of what you spend your time, energy and resources on is less profitable.
Once you do that, go all-in on the stuff that will get you across the finish line. While you are doing this, you will need to force yourself to deprioritize, outsource or automate some things you might actually enjoy doing. This dance will only happen on purpose.
4. Know thyself. Part of maximizing your time, attention and resources is to know when you generally perform at your best. If you are a morning person who is most productive before 10AM, then you should schedule your “20%” projects during those hours.
Perhaps it takes you time to warm up in the morning, but you experience your peak performance before lunchtime. That’s the perfect timeslot for your most valuable tasks.
5. Schedule downtime. Pouring yourself into your high-value activities is important and so is to give yourself breaks and days off on a consistent basis. Permit yourself to step away from work and rest your brain. This will help your productivity, giving you time to clear your head and think and allowing you to return to work with new energy and perspectives.
6. Be willing to invest in your success. Some of your 80/20 strategies may require you to spend money. You might need to hire a cleaning service or use a paid version of an app like Hootsuite to automate your social media. Go into your plan with the willingness and expectation to invest now for medium and long term gains.
Pareto Principle 80/20 Rule – Conclusion
Although symmetry sets a standard for beauty in some respects, the asymmetry of life sometimes allows us to find paths to realizing our biggest dreams. Indeed, we are subject to some of this imbalance. In those scenarios, just being aware of its existence can give you an edge, even if you cannot manipulate or take advantage of it in any way.
Nevertheless, there are more situations in which the next step of learning that an 80/20 ratio can be seen is to use it. Interestingly, the Pareto principle permeates pretty much all aspects of our professional and personal lives.
This gives us a multitude of opportunities to recognize, strategize and rise. You will probably start noticing Pareto’s ratio in action all around you now. This empowering new knowledge is yours to apply. Don’t hesitate to start changing your life by applying the 80/20 rule to map out your route to success.
What is the Pareto principle in your life look like? How do you apply the 80/20 rule in business, marketing, relationships, and daily life? We look forward to your experiences.
1- Some tips are adapted from the 80/20 rules and principles by James Clear.
2 – Fernandes, T. How You Can Apply the 80/20 Rule in Your Life and Work
3 – Brian Tracy International: The 80/20 Rule Explained