The 80/20 Rule by Pareto
The Pareto principle states that for many events, roughly 80% of the effects come from 20% of the population. The Pareto’s 80/20 Rule is also known as the 80-20 rule, the law of the vital few, and the principal of factor scarcity. It is named after Italian economist Vilfredo Pareto, who, in 1906, found that 80% of the land in Italy was owned by 20% of the population.
Rohen Burton, Chief Financial Officer of Fit n Fast suggests, “When reviewing the cash flow reports or producing cash flow projections, use Pareto’s 80/20 rule. Spend your time on the most important cash impacts of your business.
80% of your revenue comes from 20% of your customers or products.
80% of your expenses come from 20% of suppliers or cost lines.
Concentrate on these areas of the business for the biggest impacts.
Besides impacting your sales, other businesses also implement Pareto’s Rule in other aspects of their business with great success.
Pareto for Productivity
By utilising the 80/20 rule, individual employees can prioritize their tasks so that they can focus on the critical 20% that will produce 80% of the results.
Pareto for Profitability
Depending on your end goals, the Pareto Principle can be utilised to determine whether you need to focus your effort and resources on the 20% of staff that produce most of your sales to further improve their skills or to focus on the 80% of other employees that are struggling to bring in any sales.
Pareto and Page Optimization
The 20% of pages that attract the most views are generally the critical pages that display content in relation to the purchasing process of your product or service.
Pareto and Problems
Use Pareto to prioritize your problems. The higher the frequency, the greater the impact it will have on your business – so, it is crystal clear where you need to focus your attention on to improve your business.
It’s Good Service
Pareto Principle indicates that 80% of customer complaints are related to 20% of your products/services, so a proper analysis of which products/services are causing problems for your business can help you to permanently sort out customer service issues.
For more info on how Pareto can help you work more effectively, read the complete information here.