What is the Pareto Principle and How Will it Help My Business?
The Pareto Principle is, simply put, a way of looking at how your life is structured. On a very basic level, it states that we, roughly speaking, achieve 80% of our results in any endeavor from 20% of the work that we do.
In a normal, everyday context, this can be related to gardening. If we spend say, five hours gardening, this means that for those five hours, 80% of what we achieve in that garden will be a direct outcome of 20% of the activity we initiated. This might mean that we have a flower bed cleared of weeds and not much else, but it will be the most visible and effective work we have done, even though for most of the time we will have carried things here and there, done some pruning , cleared rubbish and so on.
When we apply this to our business, the principle becomes a lot more exciting. This is because it allows managers and business people in general to look at the work they do on a daily basis and literally cut out the wastage. It allows us to focus on what we are doing that gets results, and to note the activity that we are indulging in that is really not proving effective in any way.
For example, if we work in sales, we can look at the methods we use to reach out to prospects. Say we spend much of our time on the telephone calling them and trying to arrange an appointment. After a while we realise that we get more business from the prospects that live in one part of the map we are working with. However, this area of the map accounts for 20% of the calls we make that day. But it is the sector that brings the most income.
To illustrate this even more clearly, think of the restaurateur, who looks at his menu and discovers that his biggest income is coming from just two items on a ten item menu. That's the Pareto Principle.
What does the restaurateur do? He fine tunes his menu, placing his emphasis on this top 20% of dishes, and paring down his menu so that the other dishes take a back seat in his promotional materials. By doing this he is observing the Pareto Principle.
When you work every day, take a look at what you do on a daily basis. Note it down if you can in a log. Then plot the activity you carry out against the income that your business receives. If you can match an activity to income directly, that is a worthwhile activity.
That's sales calls, internet research, chatting on the telephone, emailing and so on. Consider everything in the light of whether or not it makes money.
I can guarantee that if you do this honestly enough, you will find that 80% of your business' income is derived from just 20% of what you do.
And that is the Pareto Principle.
