5 Ways To Apply 80/20 Rule (Pareto Principle) To Your Business

5 Ways To Apply 80/20 Rule (Pareto Principle) To Your Business

Where did the 80/20 rule come from and how can I apply it to my business?  First, the 80/20 rule or Pareto principle (also known as "The Vital Few and Trivial Many Rule”) says that for many phenomena 80% of the consequences or results stem from 20% of the causes.  Joseph M. Juran, business management author and thinker, made the generalized assumption based on Italian economist Vilfredo Pareto’s observation that 80% of income in Italy went to 20% of the population.

The idea has become a rule of thumb in many applications from business to more mundane tasks.  For example, you only wear 20% of your clothes 80% of the time.  Or 80% of your income comes from 20% of your clients.  In MLM, it could be said that 80% of your sales volume comes from 20% of your downline.

Finding those 80/20 ratios is crucial for maximizing the performance of ourselves and our business.  Look for 80/20 activities in everything you do and drop any inefficiencies as soon as you can.   Here are five ways to do just that.

   1. If selling products or services most likely, 80% of your sales come from 20% of your customers.  They are the ones who make the bigger purchases and are repeat buyers. Treasure that 20%!  You don’t ignore the 80% but implement ways to get them to upgrade or become long-term consumers.  For example through membership fees or autoship.

   2. Have a growing downline or an affiliate program?  Look at how much of your profit comes from each person. Make sure you reward, support and encourage the 20% that are your winners.  Also, train and nurture those that give evidence of joining the 20% club – the ones taking action and who might just need some tweaking and continued support and training.

   3. Tracking your ads.  Where are most of your sales or leads coming from?  Identify the few ads that really pull, and the few places where you run them that really produce. Then refine your winning ads, and run them in those few places that give you the best results.

   4. Tracking your business time.  Don’t waste time and resources on things that don’t bring results.  80% of your time should be spent on activities that will make you money - finding customers (prospecting) and if you are in network marketing finding people who get customers.  Everything else is secondary.  Set benchmarks for those activities and don’t do anything else until they are reached.

   5. Learn to apply the 80/20 rule to other aspects of your life.  Who do you spend the most time with?  Are those people supporting you and building you up, or disempowering you?  How much time do you spend reading good books or listening to personal development audios?  See, nothing else will matter if you don’t focus on yourself first and the space between your ears – your mind.  When you get that right and you redirect your efforts the return will be much greater.

 When you apply this rule to your business, you’ll see real improvement in efficiency, morale, and ultimately your profits.