There is no better way on earth of assuring your success than following the 80 20 rule

80 20 ruleThe 80 20 rule, also known as the Pareto Principle, is an interesting and proven phenomenon that was discovered by an Italian economist, Vilfredo Pareto, who wrote about his discovery in 1895.

This principle should be a major and standard part of your time management strategy. Yet it amazes me how many people have never heard of the 80 20, or have but don’t bother to put it to use.

Author, entrepreneur and speaker, Brian Tracy, in his well known book, Eat That Frog! calls the 80 20 rule “…one of the most helpful of all concepts of time and life management.” And if Brian Tracy believes it, that’s good enough for me.

But what is the 80 20 rule you ask?

Simply put, the Pareto Principle states that 80% of any result is due to 20% of the activity aimed at the result. For example, 20% of your sales force is responsible for 80% of the company’s overall sales volume. And only 20% of your customers account for 80% of your profit. This 20 80 rule holds true for practically everything in life, which means that for every 10 tasks you have on your list, 2 of them will be 5-10 times more valuable than the other 8 combined.

Imagine that. Only 20%, 2 of 10, one out of five things that you spend time on are effectively impacting your life.

As an economist, Pareto demonstrated a mathematical formula that proved 80% of the wealth and income in society was produced and possessed by 20% of the population. But the more interesting thing about this formula was its implications outside of the economy. Try this list of the 80 20 law on for size:

  • 80% of consequences are a result of 20% of the causes
  • 80% of company profits come from 20% of the products and/or customers
  • 80% of the stock market gains are acquired by 20% of the investors through 20% of their portfolio
  • 80% of results come from just 20% of the effort
  • The top 20% of US income earners pay 80% of the US Federal income tax

Am I beating a dead horse?

The 80 20 rule not only holds true for just about anything you can find to apply it to, but it is often even more severely skewed into a 90/10 or even 95/5 rule.

Author Tim Ferriss in the best selling book The 4-Hour Workweek relates a story about analysis  of his own business after learning the 80 20 rule. He analyzed his customers spending habits and learned that 95% of revenue could be attributed to 5 of 120 customers. Those 5 customers ordered regularly without any hassle or follow up required. Yet, he was working 15 hour days which meant he was spending 98% of his time (his claim) chasing the other 115 customers to try and make up the additional 5% of revenue.

Astounding right?

When was the last time you made this type of analysis of your business? Take time to identify the top 80% of revenue producing customers or products. Or better yet, identify the percentage of customers that you or your firm spend 80% of their time on. And more importantly, what amount of revenue do those accounts actually produce for your company?

Here’s another sticky wicket.

If the 80 20 rule holds true, then it would stand to reason that just 20% of your sales force is producing 80% of the sales income. Most managers would spend 80% of their time reinforcing, supporting and propping up the bottom 80% to attempt to increase their sales volume in the vain hope that the company would reap enormous benefit.

But what would happen if management spent that 80% of their time supporting the 20% of the sales force responsible for 80% of the sales volume. Too convoluted? Okay, you have 10 sales people. Two of them make 80% of the sales. You as the sales manager have been spending 80% of your time trying to build up the other eight sales people to increase overall sales knowing that the 2 superstars don’t need you in order to be success

Instead, what if you spent that time further supporting the superstars and helping them increase their sales (even though they don’t need your help, after all they’re superstars!). If you help the lowly 8 increase sales by 10% each, that’s great and increases sales by 2% overall. Now imagine if you helped the two superstars increase their sales by 10% each. You will have helped the company increase sales by 8% overall. That increases the bottom line 4 times for the same amount of effort.

Your getting the picture now. It’s time to reevaluate how you do…well, everything. As a time and life management tool the Pareto Principle is amazing. The 80 20 rule is a valuable tool that can change your business and your life.