David is a best-selling author, speaker and trainer. He is also CEO of IPD, a world-class marketing agency based in Tampa, Florida.
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If you’ve spent any great length of time in marketing or sales, then there’s a good chance you’ve heard the Pareto Principle and have seen it in action.
The Pareto Principle was developed by consultant Joseph M. Juran, who named the concept after economist Vilfredo Pareto. Pareto first took note of the 80/20 concept while studying wealth distribution. Commonly known as the 80/20 Rule, the Pareto Principle maintains that 80% of outcomes or effects come from 20% of causes or actions. The Pareto Principle is a concept that has been noted for over a century and can be found in multiple aspects of life and business.
Real-life scenarios in which the 80/20 Rule can be observed might include a sales team, where often 80% of revenue is generated by around 20% of the staff. The few stars may carry the bulk of the sales, while the newcomers formulate the remaining percentage. Some other possible examples of the 80/20 Rule are as follows:
• 20% of patients use 80% of healthcare resources.
• 80% of retail sales can be attributed to 20% of a store’s brands.
• 20% of drivers cause 80% of traffic accidents.
The list goes on.
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The 80/20 Rule is not just for large-scale concepts, either. On an individual level, you may find the 80/20 Rule throughout your own life—80% of your own personal merits of success may very well come from 20% of your efforts.
So, how can we utilize the Pareto Principle to maximize our earnings and benefit our lives? The secret to doing this is to first have the willingness and ability to analyze ourselves. By doing so, we can better determine what is working and what isn’t. The 80% of effort that is leading to nowhere must be analyzed so that we can know the following:
• Why isn’t it working?
• Can we change and make it work?
• If not, why are we wasting our time on it?
This allows us to eliminate much of the 80% spent spinning our wheels, so we can focus heavily on the 20% that leads to success.
Let’s break this down using an example previously mentioned. Suppose you have a team of 20 employees. Of them, 16 employees hit their numbers but almost never go above and beyond. They’re producing enough quality work that solidifies their place on the team, but they’re not winning any Employee of the Month awards. They produce, but not on the same level as the remaining four employees.
Those four employees are your star players. They go above and beyond, and their names are always on the top of the board. They compete with one another for first place, and each month is an exciting race to the finish. You never know who will come out on top, but it is always one of those four.
Now, looking at the 16 employees who are just getting by and the four who are stars, which group would you most assume needs further training? Which group should be looked to for advice? As you can see, the bottom 16 need further training. Chances are, they would benefit from taking the advice of the top four. The 20% produce 80% of the results and vice versa. We have to either dedicate further time to training the 80% or analyze what the 20% are doing, in the hopes that we can duplicate it.
The fact of the matter is this: Whether you belong to the 20% or the 80%, the truth is that 100% of us can benefit by effectively studying and understanding the Pareto Principle. This principle can apply to your health and fitness, to your everyday relationships with those around you, to your work ethic, finances and your own level of personal growth.
I’ve said time and time again that you cannot grow what you do not know. If you are unaware of the 80/20 Rule and are unsure where you fit within it, you must do your homework. You have to be able to self-evaluate as realistically and effectively as you can so you know where you stand now and how that relates to where you want to be.
This principle is tried and true and has been for far longer than you or I have been alive. We cannot control it, and we don’t have to. We just have to understand it. When we understand it, we can research, analyze and, ultimately, become better.
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Author: David Villa, Forbes Councils Member
