The 80 20 Rule: How to use the Pareto Principle to transform your business

chidera OnyeaguborProductivity, TIME MANAGEMENT

what is pareto 80.20 principle

The 80/20 rule is a phenomenal simple yet powerful concept that can transform how you view your people, processes, systems, and your entire business. 

Have you ever wondered why some habits, products, marketing efforts, client relationships, services, activities seem to drive greater results than others? This isn’t a mere coincidence, it ties back to the 80 20 Rule. The 80 20 rule is also known as the Pareto principle.

The 80 20 rule shows you simply the relationship of how things work,  not just in business but other areas in life. It can be used as a way of thinking. Understanding the Pareto principle is, however, extremely beneficial in business. It can help you identify aspects of your sales strategy, business strategy, and marketing campaign to provide greater focus on what matters most and in return generate greater results and greater rewards with less effort (that is the best part). 

It takes a lot of guesswork out of the picture, so you know where your resources, time, and funds do the most good. The Pareto principle can also help you improve productivity, transform your task prioritization techniques, offer delegation tips and tricks, and ensure you implement better systems and processes to grow your business. 

80/20 rule pareto principle

What is the Pareto 80/20 rule?

what is pareto 80.20 principleAccording to the 80 20 principle, “80% of effects result from approximately 20% of causes”. This 80 20 principle originated in 1986, and is named after its originator, Vilfredo Pareto, an Italian economist. He observed wealth distribution among individuals in Italy and discovered that the society divides naturally into two:

 

  1. “vital few”: that is the higher 20% owning about 80% of the country’s wealth and influence. 
  2. “trivial many”: that is the lower 80%, with only 20% of the country’s wealth and influence.

Since his findings, other scholars have applied the 80/20 rule of cause and effect, and realized that a variety of situations outside wealth distribution still followed the same principle of unbalanced distribution in cause and effects.  

Here are a few ideas for business cases influenced by the Pareto Principle. 

First off, if you own a business outfit, 20% of your customers could be generating 80% of your revenue.  If you run an organization, 20% of your workers could be responsible for delivering 80% of the result that makes your organization successful, and it goes on and on. Again, 20% of the most reported software bugs cause 80% of software crashes.

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Imagine the benefits of knowing this for your business. Burnout is a hot topic right now. I believe that burnout is not just being overloaded but rather chronically overstimulated unable to discern what is important and what is not. By using the 80 20 rule to better understand these relationships in your business, you will save more time and effort to focus on the ‘vital few’ and reduce time spent on the ‘trivial many’. That is how we simplify the complex and reduce the stress that occurs by making everything important and urgent. It provides a way to clearly communicate what is important and align tasks to goals.

80/20 Rule Examples

The 80/20 rule is true for almost anything you measure. In business, a great business strategist, Perry Marshall, refines the rule in his incredible book ‘80/20 Sales and Marketing”. to a simple approach:

“80% of your results come from 20% of your efforts and 20% of your results from the other 80%”. 

The goal isn’t merely to show a division or ratio in efforts and results, but to help brands grow their business at an unprecedented speed by eliminating ‘80% of wasted efforts’.

As echoed by Perry Marshall, you can use the 80/20 rule to measure almost anything in business and he focuses it on marketing:

  • Activity patterns in a day, week, or month
  • Sources of web traffic
  • Advertising waste
  • Physical location of customers
  • Popularity of products
  • Customer service problems
  • Effectiveness of salespeople
  • Sources of incoming phone calls
  • Types of product defects
  • Problem employees
  • Productivity of web pages. 

 

You can equally use this powerful rule to boost productivity and time management. Here’s an idea of the 80/20 time management scenario:

If you have a comprehensive to-do list that is made up of 10 items, two items would be worth more than the other 8 items. Hence, to be able to realize where your priorities lie, you can focus on the 20%, (most essential, “vital few”), instead of focusing your time and effort working on the 80%, (lesser value, “trivial many”).

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Exponential Power of the 80/20 Pareto Principles 

Perry Marshall also adds to the previous theory by clarifying the real power of the Pareto Principle. He found that it is exponential. It is a multiplier. I refer to 80 20 thinking as a multiplier mindset. 

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This means, it’s not just about the first 80/20 relationship, but take the 80 percent left and then further split it with the 80 20 rule. The results can be further zoomed to 80/202 and 80/203 with just as true and provide leveraged results. 

The real power of the 80/20 principle lies in 80/202 and 80/203. Penny Marshall gives a perfect example of using roads within a city. 

He said “ you can disregard 80 percent of the roads in your city, only look at the top 20%, and the 80/20 rule will still apply. 80% of the 80% of traffic is on 20%  of the 20% of roads”. In the end, only 4 percent of the roads witness 64% of the travelers. 

If you go again: 80% of the 80% of the 80% of the traffic, runs on 20% of the 20% of the 20% of the roads. This means 53% of travelers only drive on 0.8% of the roads. 

You can keep evaluating the division even up to 80/205 and beyond. All of it comes down to the fact that leveraging the tiniest percentage of best efforts leads to tremendous results. 

Let’s take another example from sales; 

2 out of 10 hired salespeople will generate 80% of the sales, while the other 8 generate only 20% of sales. This means if you go person for person, the two are sixteen times better than the 8. So a good salesperson won’t be 50% better, but 16X better, which is massive leverage you want to harness.

Learning and modeling what those 2 people are doing is a better way to boost the existing salespeople and find new salespeople than focusing on their weaknesses and trying to improve them.

Where you choose to focus will determine your results.

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Benefits of the 80-20 Rule

Overall, you can evaluate diverse parameters in your business (people, systems, processes, etc) by zooming in to uncover multiple layers of leverage and cut out huge amounts of waste from your budget and day. 

Again, you can apply this principle in marketing, time management, productivity, sales, and lots more to grow your business. It is a powerful tool for quality and performance control.

As a manager or businessman, the 80/20 principle will help you access a clear picture of your company’s problems and prioritize its purposes. With that, you can make decisions on how to avoid future crises and develop more ways to make your company grow. The 80 20 rule can power innovation and be your differentiator in the market place.

One thing you must love about the 80/20 rule is that it isn’t just valid for the extremely wealthy to run multiple corporations, it’s the same for a freelancer who wants to transform their earnings or for raising children. It even factors in spending habits, personal finance, and personal relationships. 

However, it’s important to realize that the 80/20 division isn’t absolute but figurative. We should also not assume that it always sums up to 100. The 80/20 rule merely serves as a guide. For instance, 20% of the workers in your organization could deliver 15%, or 95%, or even 100% of the results your organization makes. 

applying the 80/20 rule in business

 

Pareto Principle and Prioritization Matrix; Achieving the Best Results in Business

 

As a project manager, business executive, or owner, your responsibilities take many forms including fostering change management, process mapping, managing stakeholders, communicating updates, planning milestones, and lots more. 

To maintain optimum balance, you must exhibit the art of prioritizing tasks and projects. This crucial management skill will be extremely beneficial in managing organizational priorities while responding to market shifts, changing customer expectations, among others. This extremely critical skill will also ensure you can manage project resources regardless of project type or size, they are always size. 

The Pareto principle makes it easier to objectively compare the many responsibilities and activities you must handle to determine:

  • The “vital few” projects that are important and critical 
  • The “vital few” processes that bring the most value to the organization
  • The ‘vital few’ goals that have the best chances of success. 

It is simply all about making sure you prioritize tasks, processes, systems, tools, and lots more that would lead to incredible results. 

As a project manager, business executive, or owner, it also helps you keep track of how you manage your time from a personal perspective. Most people in critical positions begin their day by reacting to other people, dealing with crises, and fixing things before they get down to handling the most productive tasks. 

By combining the prioritization matrix and the Pareto principle, you can create an efficient process that gets the best results for your organization. 

Applying the Eisenhower matrix (2×2) 

Typically, there are several types of prioritization matrices. Let’s look at how the Pareto principle can transform how you view the Eisenhower matrix:

prioritization matrix and pareto principle

The Eisenhower matrix divides tasks into two-axis and quadrants including tasks that are both urgent and important, tasks that are important but can be done later, tasks that are not important but needed now, and tasks that are not urgent and important. With the Pareto principle, making the splits into these quadrants will not just be viewed from the perspective of urgency but value. That way, it becomes easier to further narrow the field to focus on tasks with higher levels of success. 

By combining both, it becomes easier to accurately understand and outline the numerous constraints you must deal with during every project, better manage time, and even resolve conflicts when they happen. 

You can equally implement the Pareto principle to increase the value of your time, product, and services. Let’s say you make $15 an hour. In thinking about how to increase your value, most people simply ask the question ‘can I make $16?’ Can I get $18? Can I get $20?. The real question should be figuring out tasks that are worth $15, from tasks that are worth higher. For instance, an hour’s work is different for different tasks. Some things are worth $10 an hour, while others are worth $100 an hour, $1000 an hour, and so on. By putting a value on these tasks and quadrants you will be able to better assess the best use of your time, and decide where and how to delegate.

 

Beyond these ideal scenarios, here are other examples of how the Pareto principle enables the best results:

 

  • If 80% of your sales come from 20% of your clients, then you should focus on further development and improving relationships with the biggest clients or search for new ‘look-alike’ clients
  • What if 20% of your output makes the best 80% impact on your organization’s goals, it makes sense to focus on that 20% and delegate the others.
  • If 2 out of 10 time-wasters (meetings, email, phone calls, social media, instant messaging, daily news, TV, gossiping) are responsible for 80% of your time wasted, you can identify those 2-time wasters and minimize or eliminate them. 
  • If 20% of your business meetings bring the best focus, it makes sense to shorten those business meetings. 

So in the end, it’s not about increasing your work and trying to do more or cramping your time trying to work harder. It’s prioritizing, decluttering, and simplifying by focusing on what you truly want and is of the highest value and bringing that to reality. That way you see the big picture as to what to focus on for the fastest advancement in business life. 

 

Time Management Tactics to Help Sustain The Pareto Principle

 

The first time might seem easy prioritizing the most important tasks. But then you want to ensure you remain focused on using the Pareto principle and prioritization matrix to drive better results. Here are three tactics you should consider:

1. Be ruthless about which tasks go on your to-do list

Remember not all tasks are created equal. Your goal is to align your tasks with your goals. First and foremost, make a careful analysis of all tasks using task prioritization. And you need to be hyper-aware so you remain proactive and not reactive. Otherwise, your day might be quickly hijacked and your productivity suffers. To remain proactive, you need to stay disciplined and focused on which tasks take are the highest value; schedule them, do those first and put them on your to-do list.  This is especially important when you report to others and must also talk about why certain priorities take precedence over others.

2. Delegate, outsource and automate where possible

You must focus on the tasks with the greatest impact. This means you shouldn’t allow other tasks to distract you or get in the way. Looking back at your prioritization matrix, you should figure out which tasks to automate, outsource and delegate. 

3. Timebox Deep Work

We are wired to respond to distractions and low-impact activities faster than how we respond to deep work. This is why as a productivity speaker, I always recommend harnessing the powers of time blocking or time boxing some call it. When you enter a block of time in your calendar, designate a task or outcome to it, it creates focus and becomes easier to get on with the task, avoiding procrastination and rescheduling.  Generally, you should reserve 80% of your time on the most important tasks of the day. See what I did there?

4. Always start with the most important task

There’s no use getting carried away by other low-impact tasks. As Brian Tracy always says, in his best-seeling book Eat That Frog. When you start your day with the hardest and most important task, everything else falls in line and you feel productive.

Productivity is like happiness it is more of a feeling and that feeling comes from making progress on our most valued goals and intentions.

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When it comes to task management check out Francis Wade and what he calls Pareto Improvements

5. Eliminate interruptions and distractions as much as possible

distraction quizDon’t forget that you need to remain active in the control of how you expose yourself to distractions. This is why I always recommend creating a high-energy work-focused physical and virtual environment free of potential distractions. Virtual distractions may include chat messages, app notifications, phone calls, and lots more. 

Take my Distraction Quiz to find out just how distracted you really are. Awareness is the first step to change. In order for us to condition 80 20 thinking we have to create heightened awareness around the noise and distractors that keep us from our 20%

Concluding Thoughts

Whether you are working alone, with a team, organizing a project, time, money and energy are resources you must carefully manage.  It is critical to have a firm handle on multiple systems, processes, people, tasks, and other responsibilities. 

So it makes sense to invest in principles that can make it easier to prioritize tasks and projects effectively. By integrating the 80/20 principle, you can focus on the 20% or important activities, processes, people, and systems that yield the highest results. 

Stay Tuned for my book 80 20 Thinking coming out later this year.