Back in the late 1800’s, Italian economist and sociologist Vilfredo Pareto noticed something curious about his garden. He observed that 80% of the peas he harvested from his veggie patch were produced by only 20% of the peapods. When he applied this theorem to land ownership in Italy, he saw that 80% of the land was owned by 20% of the total population. Thus, the basis of the 80/20 rule – otherwise known as the Pareto Principle, was created.
While the Pareto Principle was originally used by Pareto to demonstrate the distribution of wealth, the idea is very easy to understand and apply, especially in many aspects of modern business. Here are just a few of the ways that it can help you improve your business performance:
- Sales: Your company’s own customer base is a great place to start applying the Pareto Principle. Work out who the top 20% of your customers are (who would represent 80% of your total sales) and look closely at their characteristics or customer profiles. Marketing to more potential customers with similar profiles will provide more targeted, successful marketing to grow your sales and profits.
- Productivity and Time Management: Have you ever examined in depth how your employee’s time is spent? (Hint: Wink Reports can easily do this for you!) If you determine what 20% of employee time is spent on the activities that produce 80% of your business results, you can encourage them to spend more time on those activities and reduce their attention to others that are less productive or important.
- Human Resources: Are you considering hiring additional staff? Apply the Pareto Principle to your current workforce to determine your top performers. ) 80% of your company’s results are achieved by 20% of the workgroup. What skills, education or experience do these employees possess? These are the key aptitudes you should seek out in your potential hires. In the opposite vein, 20% of your staff could be responsible for 80% of your human resource related problems so keep an eye out for those!
- Employee happiness: Just quietly, we all know that we don’t work flat out for eight hours a day. Most of us will admit that we tend to have a productive burst for some of our working day, then take it a lot easier for the rest of it. Consider using the Pareto Principle to alter the hours your employees work – for example, cut an 8 hour working day down to 6. This can mean that you not only get the most bang for your buck out of your staff, but it’ll make those staff very happy. And happy staff are loyal, productive team members.
As you can see, the Pareto Principle can be applied across a broad range of management and business aspects. Have you used the Pareto Principle to improve your business or start-up? I’d love to hear about your experiences, so feel free to leave a comment! ;)