It’s not unusual to see businesses and entrepreneurs pausing to rethink their motives, goals, and strategies. If you are looking for something to help along the way, we’d like to introduce you to the Pareto's Principle.
Heard of it? Of course, you have!
But since we love telling stories, here’s the legend behind the Pareto’s Principle in a nutshell.
Once upon a time...
Back in 1895, Vilfredo Pareto (1848-1923) an Italian economist, in the course of his research found that a large portion of Italy’s land was owned by a very small group of its most powerful residents. On further research, Pareto discovered that about 80% of the land was owned by nearly just 20% of the population. Digging deeper Pareto extended his research to other countries and was surprised to discover similar findings.
In 1941, Dr. Joseph Juran pointed out that the Pareto Principle was universal and that it can be applied to all quality issues, even those beyond economics. In effect, it was established that 80% of the effects arise from 20% of the causes, which gave rise to “the vital few and the trivial/useful many” concept.
The Pareto's rule or 80 20 rule indicates that 20 percent of your efforts produce 80 percent of the results. Here are two pie charts explaining the same.
Ever since the Pareto’s Principle has been implied in various industries under the names “the 80-20 Rule,” “the Principle of Factor Sparsity,” or “the Law of the Vital Few.”
Here are some real-time examples:
- 80% of peas were produced by 20% of the plants in the garden. (It’s been said that this was Pareto’s aha moment!)
- 80% of your results are from 20% of the time you spent. (This could be your aha moment!)
- 80% of medical resources are utilized by 20% of patients in the U.S.
- 80% of the world’s pollution is from 20% of the factories.
- 80% of the Covid19 transmissions happened because of 20% of the cases.
Well, let’s talk business now.
- 80% of a company’s profits are made by 20% of its employees.
- 80% of a company’s sales are from 20% of its salespeople.
- 80% of your sales come from 20% of your customers.
- 80% of your online sales are due to 20% of your products.
- 80% of the leads generated from your content marketing strategies are from 20% of your content.
- 80% of your traffic comes from 20% of your traffic channels.
- 80% of your conversions happen on 20% of your landing pages.
- 80% of your sales come from 20% of your advertising channels.
- 80% of your website’s visitors come due to 20% of your keywords.
- 80% of your social engagement comes from 20% of the posts you share.
- 80% of complaints are from 20% of your customers.
- 80% of workplace mishaps happen due to 20% of the hazards.
The Power Of The Pareto’s Principle
“The Pareto Principle is the most powerful compound interest on earth,” said Perry Marshall, a marketing strategist. In his paper, he explores the “explosive potential of 80/20.”
What does that mean?
Ideally, if you break down the 20% that give you 80% of your results, you’d see that 20% of it was responsible for 80% of those results again. This could go on and on to infinity.
Taking Advantage of The Pareto’s Principle
We’re sorry to break it to you, but the principle doesn’t mean that you give the best 20% of your efforts to do one job and relax the rest of the time. No, it doesn’t imply that you show up at work, give your best 20% and leave.
It rather pushes you to double up on your “vital 20.” That essentially means that 40% of your efforts would lead to 160% of your outcomes. Wow!
Just imagine how much more profit you’d be making if you concentrate on doubling your efforts on lead generation and nurturing relationships with that 20% of your customer base? How much more sales deals will you be closing if you could focus more on your top-performing advertisement channels?
Now that’s powerful, right? With great power comes great responsibility, so...
A Word Of Caution
It’s easy to get carried away by the optimism of the Pareto’s Principle. However, it’s only a principle and not a law that the universe functions on. Neil Patel calls it a “trend,” something that happens most of the time.
Therefore, don’t be one of those organizations that fall into the Pareto trap and base all their decisions on a principle rather than on hard facts. Trust your analytics and the data you have. Use the principle as a guide that aids your decision-making processes.
To Wrap Up
The Pareto Principle states that 80% of the effects are the result of 20% of the efforts. Instead of letting this set a laid-back approach, use the probability to double up on the 20% of your best-performing efforts — be it in your team, toward your customers, or in implementing your strategies. Aim for making use of the extra time to better your chances of success.
At Spinta Digital, we strive to implement the 80-20 Rule for all our clients to help them fasten the rate of achieving their goals. Book a free strategy call with us today, and we can help you get started too!