What is the Pareto Principle?
The Pareto Principle, also called the 80/20 principle, is a concept observed and formulated by the Italian economist Vilfredo Pareto way back in the distant 1895. Surprisingly, that doesn’t make it any less true or applicable nowadays. This rule is still quite accurate and, if used as a guideline, can help you completely transform your business and your life. Let’s find out how exactly it can be of use to you.
The two masterminds
In 1895, the Italian economist Vilfredo Pareto was observing the pea crop from his garden. Noticing that a small percentage of the best pods accounted for the majority of his peas, it got him thinking about his own field of work – economy, and more precisely – wealth distribution. The conclusion he came up with was that, in Italy, 80% of the land and wealth was owned by 20% of the people.
Some 50 years later, Joseph M. Juran, a management consultant, revisited Pareto’s claim, and found that it could be generalized and applied to any aspect of life and work. Juran stated that in every sphere of life, 80% of consequences can be attributed to 20% of causes. This was named the Pareto Principle, after Vilfredo Pareto, and is still, to this day, an important concept in business management.
Understanding uneven distribution
The principle uses 20% and 80% as its guideline values. In life, you will notice that in a lot of examples, the real values are uncannily close to these hypothetical ones. However, even if they differ, the point remains the same: there is an uneven distribution of effect. Perhaps 20% of employees do 80% of work in a company. Or maybe 20% of the clients bring in 80% of the revenue. Perhaps 20% of your tasks take up 80% of your time. Sometimes these numbers will be off – for instance, maybe your application has just one feature that singles you out from your competition, and that one feature alone brought in 80% of your users. The point is, the relationship between cause and effect is not a straightforward one, nor is it quantitatively the same in every single case.
How you can benefit from the Pareto Principle
There are numerous ways to use the Pareto Principle to your advantage, both in business and in personal life. First and foremost, the Pareto Principle is an excellent analysis tool that can provide you with indispensable information on the chain of cause and effect in your life. By establishing which 20% of causes lead to which 80% of consequences, you will gain meaningful insight that can help you transform your life. For instance, if you establish that 20% of your clients bring in 80% of the profit, you can then analyze the clients and try to attract more like them. Or you could try to make more time for them and offer them additional services, while slowly fading out those clients who take up a disproportionate amount of time and effort for very little returns. When it comes to employees, the principle can help you identify the core group you should try to reward and keep satisfied, as they are the ones who get things done.
Applying it to your personal life
It might sound like a stretch to try to apply an economic principle to your personal life, but it works uncannily well. Take a look at your life, and you might find that 20% of people and activities account for 80% of your happiness, while the others are just filler, or even unpleasant. It makes sense then, that once you’ve identified and classified everything in your life into either the 20% or the 80%, you would work on improving this balance, by spending less time on those people and activities that bring you no joy. It’s next to impossible to handle everything in life with the same amount of effort. Using the 80/20 principle can help you determine what you want to dedicate yourself to, then either skip or delegate the rest.
The Pareto Principle can be used as a guiding light in enabling us to identify the causes that bring us the most benefits in the long run. By focusing the majority of our efforts on them, we will be able to maximize those beneficial effects. However, we still need to be careful not to get carried away. Focusing solely on the 20%, be it our top employees, the main outline of a job, or the best-paying client, could result in critical mistakes. It is our job to at least try to bring some of those 80% over to the superstar 20%, or, if that’s impossible, to try to replace them with some better alternatives