Pareto’s Principle: A Rule Of Thumb You Must Know

John and Stuart are two salespersons who are great at closing business deals. They work in the same city and are both in the stationery business. They are also roughly the same age and have also recently had their first child. John focuses on being efficient; making sure that he offers all his customers the best customer service possible, ensuring their every need is cared for and, as a result, makes €10,000 in sales turnover a month. He also works busy 12 hour days, every day, and only gets to see his wife and child for a couple of hours before going to bed.

Stuart, like John, wants his customers to get the best service possible. Unlike John, however, Stuart does not focus on all his clients, just 20% of them. He makes €9,000 in sales turnover but works 2 hour days, every day, and gets to spend as much time as he likes with his wife and child.

How is this possible?

Thanks to (the understanding of) Pareto’s Principle, more commonly known as the 80/20 rule. This scientific theory says that 20% of your input gives out 80% of your output. This is something important for you to remember, 80% of your turnover comes from 20% of your clients. The remainder 80% of your customers give you only 20% of your turnover but normally give you 80% of your troubles and stresses.

Like Stuart, you should focus your energies to doing good business with (roughly) 20% of your big spenders. You will see that before long you will have more time on your hands. Don’t stay worrying about the remainder 80% of your customers, instead spend the time hooking 1 new big client or enjoying time with your family or even learning a new skill; in other words, having FUN!

Other examples of Pareto’s Principle are explained below

20% of the input creates 80% of the result
20% of the workers produce 80% of the result
20% of the customers create 80% of the revenue
20% of the features cause 80% of the usage

Don’t be afraid of losing some business at first. Some of the 80% will go off to your competitor and that is good for you; let your competitor waste his or her time with them whilst you enjoy having more time to chase the big fish.

Not yet convinced of the validity of Pareto’s Principle? Take this blog post, it’s got roughly 7 paragraphs. If your time is limited and you wanted to get 80% of the knowledge reading only 20% of the article, you would just read the statements in bold!

What do you think now?