Using the Pareto Principle to improve on performance

How can you apply the 80:20 rule to improve performance in and of your business?

The Pareto Principle originated in the late 1800s when an Italian economist and sociologist, Vilfredo Pareto, noticed something curious about his garden. He observed that 20% of the peapods in his vegetable patch produced 80% of the peas he harvested from it. When he applied this theorem to land ownership in Italy, he saw that 20% of the total population owned a whopping 80% of the land. This was the basis of his 80:20 rule, a.k.a. Pareto Principle.

How the Pareto Principle applies to modern business

While he originally used the principle to demonstrate wealth distribution of wealth, the idea is very easy to understand and apply, especially in many aspects of modern business.

We’ve identified a few ways that you can use it to help improve your business performance.

Sales

Your customer base is a great place to start applying the Pareto Principle to your business. Work out who the top 20% of your customers are - they would represent 80% of your total sales. Look closely at their characteristics or customer profiles. You’ll be able to market to potential customers with similar profiles in a more targeted way, increasing the success rate of your marketing and sales efforts. And, ultimately, boost your profits and growth prospects.

Productivity and Time Management

Have you ever examined in depth how your employees spend their time? If you can figure out what 20% of employee time is spent on the activities that produce 80% of your business results, you can encourage them to spend more time on those activities and reduce their attention to others that are less productive or important. By the way, Wink Reports can help you track your employee activity.

Human Resources

Thinking about hiring additional staff? First apply the Pareto Principle to your current workforce to determine your top performers. If 20% of the work group generally achieves 80% of your company’s results, make a list of the skills, education and work experience of your top 20% employees. These are the key aptitudes to look out for during recruitment. The reverse applies too: if 20% of your staff is responsible for 80% of your human resource-related problems, it might be a good idea to keep an eye out for those too!

Employee happiness

We can all (quietly) admit we know that nobody works flat out for eight hours a day. Most of us  experience a productive burst at certain parts of our working day, then take things a lot easier during other parts. Consider using the Pareto Principle to alter the hours your employees work. For example, you could cut an eight-hour workday down to six hours. We believe this can get you the most bang for your buck out of your staff, and it’ll make your employees very happy. And happy staff are loyal, productive team members!

Let’s go 80:20

From this broad range of management and business areas that we suggest applying the Pareto Principle, can you spot anything that would resonate with your company?

Or maybe you’ve already used it to improve your business or startup - we’d love to hear about your experiences. Leave a comment to tell us how you made your top twenty yield an excellent eighty and share your insights with other business owners.

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