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

Here’s a short story for you.

 

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, everyday 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, everyday, 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, its 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?

Image Source

The FUN Entrepreneur

Having started my first business at the age of 16 I was always eager to dive into the exciting world of entrepreneurship, but seeing so many others fail I sought ways to succeed, not only by making money, but also by having fun whilst doing it!

4 thoughts on “Pareto’s Principle: A Rule Of Thumb You Must Know

  • December 7, 2015 at 2:58 pm
    Permalink

    You are completely right. Business is like a breathing person so you must take care of it as you would your child. As you said, at the beginning, until you get the big fish and have your name out it is important to focus on the “small fish” so that your business can start feeding itself. Marketing is a very important tool to help you catch those big fish.

    Reply
    • December 23, 2015 at 11:29 am
      Permalink

      Thank you for your comment, Lasertag. Yes, a business needs to start by focusing on small fish but as it grows it’s focus should be geared towards the bigger fish which can generate a larger turnover without considerably increasing the overheads.

      TFE

      Reply
  • June 23, 2016 at 3:35 pm
    Permalink

    Really interesting rule, never heard of it though it makes a lot of sense. Many thanks for posting, I’ll just bookmark this web site.

    Reply
    • June 26, 2016 at 11:20 am
      Permalink

      Thanks Joan for your comment. Pareto’s Principle is used by many professionals and is a great way to manage your limited time. I’m glad you’ve found it useful. To get an instant message each time a new post is published, be sure to subscribe to The Fun Entrepreneur.

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *