Posted by Shivali Anand
January 27, 2022 | 5-minute read (925 words)
Do you often feel as if there is not enough time in the day to do everything? According to the Pareto principle of efficiency, it’s possible that you're concentrating on the wrong things. Many entrepreneurs use the Pareto principle, which is sometimes also referred to as the 80/20 rule, as a technique for staying focused and productive.
The Pareto principle holds that for most outcomes, about 80% of consequences comes from 20% of causes. In other words, a small percentage of causes have an outsized effect.
Under the Pareto principle, each input unit — such as effort or time — contributes to a particular outcome, like revenue or productivity. It proposes that from your whole daily task list, you should complete the 20% of tasks that will result in 80% of the impact you create that day.
Examples of applying the Pareto principle to your task list:
Entrepreneurs can apply the 80/20 rule to attain results such as:
- If 20% of consumers account for 80% of profits, focus on satisfying those clients.
- If 20% of computer bugs cause 80% of crashes or failures, address those glitches first.
- If 20% of items provide 80% of sales income, focus on improving those products first.
Consider the following strategies to implement the Pareto Principle in your business now that you've grasped the concept.
Applying the 80/20 rule can increase your business’s profits
As per the 80/20 rule, around 80% of your business revenue is expected to originate from 20% of your clients. Based on this assumption, you can apply the 80/20 rule to a customer profitability analysis by following these four steps:
Step 1 – Identify the most lucrative clients by grouping 20% together (high revenue-generating consumers)
Step 2 – Make a profile of your top revenue-generating clients. Begin looking for clients who fit the profile so you have an overview of the top customers.
Step 3 – Concentrate more on the 20% of your clients or customers who account for 80% of your revenue. Retain such clients, market to them and find new ones with a similar profile.
Step 4 – Redirect client purchases to higher-margin products and services. Phase out unprofitable customer segments.
Apply the 80/20 rule to price products
On average, about 20% of a company's products or services generate 80% of its sales income. A business that deals with multiple products can adopt a more sophisticated pricing technique for those 20% of products that cumulatively account for 80% of sales revenue.
For the remaining 80% of products, the business can use a cost-based pricing approach.
Apply the 80/20 rule to optimize business networks
The 80/20 rule can help business owners reach target customers faster while lowering the time and effort to do so. Use the steps below to concentrate on the 20% of investors that supply 80% of their startup capital.
Step 1 – Determine which 20% of your marketing tactics helped you reach the maximum, or 80%, of your target audience. Also, determine which 20% of your marketing messages contributed to 80% of your campaign's success.
Step 2 – Create your marketing campaigns with 20% effective content. Concentrate your efforts on the marketing channels and methods that can help you reach your target consumers or clients more quickly.
Step 3 – Identify the customers or investors from whom you benefit the most, and spend most of your time and energy cultivating and building connections with them.
Apply the Pareto principle to boost productivity
Use the Pareto principle to set goals that optimize overall productivity through the following steps.
Step 1 – Identify and then prioritize the goals that will have the biggest impact on your life. In business, use the 80/20 rule to identify inputs with the most significant potential for productivity, and make them the priority,
Step 2 – Identify your productivity roadblocks, and commit to doing something every day to address them.
Step 3 – Begin each day by completing the top 20% of high-value tasks. Concentrate on becoming competent at doing the most productive things in your field that contribute to 80% of your results.
Apply the Pareto principle to improve time management
You can use the 80/20 rule to make the most of your time by following the steps below.
Step 1 – Identify the 20% of projects, actions or commitments on your to-do list that must be completed to achieve the majority (80%) of your objectives.
Step 2 – Once you've identified the factors that are crucial to your company's performance, concentrate further on the key result areas of your chosen field. Prioritize the tasks that are the most important to your business’s growth. Also, devote time to identifying and eliminating high potential errors or risks to your business.
Step 3 – Delegate less-productive tasks and spend your time on those that will help your business grow. Consider handing off tasks such as accounting, HR and finances that take up 80% of your time so you can free up your time to focus on scaling your business.
Keep in mind that the 20% and 80% are only estimates, not exact statistics. There's no reason to be concerned if your company's stats aren't exactly 80% and 20%. Your ability to identify and concentrate on the top 20% of tasks will determine your quality of life and results.
- To boost profits, productivity and efficiency.
- To appropriately price a product (in a multiproduct company).
- To improve time management by prioritizing problems, goals and objectives.
- To improve quality control by determining root causes.
- To more effectively allocate time, effort, financial processes and human resources.