Surf the Internet and you’ll find people advising that the 80-20 rule (otherwise known as the Pareto principle) can benefit you in all areas of your life from choosing which book to read to running your business.
But, for now, I’ll just stick to how it’s used for commercial purposes.
The basic idea is that 20% of your products/sales/productivity creates 80% of your profit. The important thing though, is not to get too hung up on the ratios. It could be that 30% produces 80% – yes I know that doesn’t add up to 100% but it doesn’t have to as we are talking about two different things – input and output.
For example 30% of your product line produces 80% of your profit.
10% of your sales force brings in 80% of your sales.
It’s more about the idea that a small part of your business creats the majority of your profit.
For a mathematical explanation of the numbers I recommend Wikipedia.
Applying the 80-20 Rule to Your Business
By identifying the important 20% input of effort, or products etc, that give you 80% of your results means you can trim out, or reduce your focus on, the less productive elements and concentrate on those that really bring in the profits. This should, in theory, give your business a boost.
The Chartered Institute of Marketing explain how to find your best 20% in their 10 minute guide to the 80-20 rule.
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And, here are four suggestions for how NOT to apply the 80-20 rule .
Inspiring Ideas from Nature
The 80-20 principle was put forward by Joseph Juran – a business management consultant – after observing that 80% of the peas that grew in his garden came from 20% of the pea pods.
He named the principle after the Italian economist Vilfreds Pareto who had observed that 80% of the land in Italy was owned by 20% of the population.
The natural world has inspired many new products from the airplane to velcro as well as inspiring new systems and attitudes for business. Here are 10 items inspired by nature and Kew gardens have a blog about using nature to think about business.
Don’t forget to check out Business Bites for more hints and tips on running your business. This month Diana looks at: how to gain confidence when speaking to an audience; finding out if you’re a good proofreader and preparing small adverts that really sell. Enjoy!
