The
Pareto principle (also known as the 80/20 rule, the law of the vital few, or
the principle of factor sparsity) states that, for many events, roughly 80% of
the effects come from 20% of the causes.
Put another way, 80% of business outcomes can be contributed to 20% of all the causes
for a given event. This principle is named after Italian economist Vilfredo
Pareto, who found that 80% of the land in Italy was owned by 20% of the
population in 1906. The most important thing about this principle is that it
can apply in any field whether in your life or businesses. However, I will
discuss about its importance in the business field only in this blog.
It
does not matter which businesses are you in, this 80/20 rule can be profoundly
found. For instance,
·
What? - 80%
of your sales can be generated through 20% of your products.
·
Where? - 80%
of your profit can be generated through 20% of your market segments.
·
When? - 80%
of your results can be achieved by using 20% of your time.
·
Why? - 80%
of your business objectives can be accomplished by focusing on 20% of your
business activities.
·
How? - 80%
of your profit can be obtained by focusing on just 20% of your customers.
It
can be said that this 80/20 rule has been used as a tool to grow your
businesses successfully and as profitable as possible. This rule will be
helpful for identifying your most important business priorities which can have a
potentiality to instill 80% of your business results. Now while this rule has
been used by many savvy business owners and executives for many years, a recent
and unique description of this rule has taken its importance and power to a
totally new level. According to Perry Marshall’s book-“80/20 Sales and
Marketing”- Pareto principle is even more exponential if within that 20%, the
80/20 rule exists. Putting it another, top 20% of the top 20% of your customers
or businesses (or top 4% of the overall) represent 64% of your business
success. Now it has become clear that top 4% of your businesses or customers
may account for 64% business success.
In short, this 80/20 principles states that
20% of your business efforts is responsible for 80% of the results obtained. Understanding
this will help the businesses to identify the most profitable customer or
market segments, and launch targeted marketing campaigns with the most
impactful consumers. This can be applied to many businesses, especially those
that are customers-based. However, it can be applied to other fields such as
time management, productivity and customer satisfactions and so on.
References:
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