In this article read about the Pareto Principle or the 80-20 rule, an example from my life, a step-by-step checklist to implement it in your life.

Pareto Principle History

The 80/20 rule, also known as the Pareto Principle, was first introduced in 1906 by Italian economist Vilfredo Pareto. He was trying to explain the distribution of wealth in society. He observed that 80% of the land in Italy was owned by 20% of the population. 

While that is still the case in Income Distribution across the world, the 80/20 rule has been widely adopted in multiple domains. In the business and management industry, this rule is used to show that 80% of the outcomes come from only 20% of the inputs.

Pareto Principle or 80/20 rule – Definition

The 80/20 rule states that 80% of the results are usually achieved with only 20% of the effort. In other words, the majority of the outcomes (80%) come from a small portion (20%) of the inputs. 

A Real Life Example of 80/20 rule 

It can be immensely beneficial to apply the Pareto principle in your life. It is a great time management and prioritisation tool and can lead to incredible outcomes. 

In 2012, While working as an Areas Sales Manager (ASM) for a top Oil Company, I was having a major time management issue. I used to get over 100 complaints every day in my mailbox. Apart from that there were top level complaints that came down from the hierarchy. And there were continuous phone calls. There was no way I could have manually satisfied the customers. 

This led me to look at the data.

I had 20 distributors assigned to me, around 650,000 customers, about 140000 ( about 25%)  of whom belonged to 3 distributors ( 15% of total distributors ) . 

Looking at the complaints, I spotted a pattern – about 80% or so complaints were coming from only these three distributors. 

I looked at my schedule – it was equally distributed for the next 3 months among all the distributors. 

A big NO NO – I told myself. 

I realigned 80% of my schedule and visits to these 3 distributors for the next one month. 

What followed next was discovery of irregularities and subsequent strong actions that completely changed the game for me. 

In about 2 months, the complaints dropped down to 20% of the original level – a big relief to me. 

The customers started showing positive responses – both directly as well as in the form of movements from competitor companies. 

What’s more ? My other distributors, who were afraid of similar actions, improved their service without even my visits. 

What I learned from this experience stayed with me. But since then, I have  been able to reap the benefits of this rule in multiple facets of life. 

Let’s have a look at some of the benefits of applying the 80/20 rule. 

The Benefits of the Pareto Principle

The 80/20 rule can be used in many areas of your life to help you manage your time, resources, and focus. Here are some of the benefits of this rule:

• Helps you manage your time

By understanding the 80/20 rule, you can identify the activities that take up most of your time and that are yielding the least amount of results. You can then focus on the activities that will actually help you achieve your goals.

• Helps you de-clutter your life

Equipped with the 80/20 rule, you can confidently cut down the distractions in your life and focus on a few activities that will bring the most rewards. This will not just free up your time and resources and make you feel more comfortable, but also help you reap big rewards. 

• Helps you reduce your stress levels

When you identify the activities that are yielding the most results, you can focus on those and reduce your stress. This will help you lead a happier and less stressful life. 

• Helps you improve your productivity

The 80/20 rule can help you increase your productivity by focusing on the 20% of activities that will yield the most results. This will maximise your efficiency and get more done in less time. This is immensely beneficial if you are an entrepreneur or a freelancer. Even employees can use it to increase their output and showcase stronger results leading to promotion and personal satisfaction. 

Pareto Principle Examples 

The 80/20 rule can be applied in many areas of your life. 

Let’s have a look at some of them : 

Business

• Customer service. 80% of complaints can be attributed to 20% of reasons / or people. Find these reasons and start working on them to see magical results.  
• Sales . 80% of sales come from 20% of sales channels, or accounts. Focus on these channels, work with these clients to understand their businesses and requirements. You will unlock immense potential through referrals to similar businesses, as well as expansion of scope for these clients. 
• Operations. 80% of errors can be attributed to 20% of process faults. Identify these faults and bottlenecks and correct, maintain, replace these machines. 
• Product selection. 20% of products contribute to 80% of revenue. Focus more on these products, build schemes around them, work on their visibility and marketing. 
• Employee rewards. 20% of employees contribute to 80% of results in the business. Grow them, promote them, appreciate them. You must make sure that you do not lose these employees and you will be on the path to building a high performing team. 

Health

The 80/20 diet plan is one in which 80% of the time you eat, you eat nutritional foods, and 20% of the time you can eat whatever you please. 

Relationships

• People. 80% of support and happiness in your life comes from only 20% of the people. Identify and try to spend more time with them. 

• Activities with people. 80% of bonding in relations happens during 20% of activities, which we frequently ignore. Work on these activities and you will see an immense change in your relationship. 

On a separate note, once you start practicing this, you will be amazed to observe that relatively smaller efforts and simple activities like sharing household chores , cooking a dish together, can be intensely romantic. Besides, you never have to find time for planning such activities as these moments are always available.

Dating

You cannot (and should not ) try to find a perfect match in your prospective partner. 

Match 80% of your belief and value systems and if you find someone like that, go ahead. 

Both of you will have a wonderful life working on your strengths in 80% of your interactions, and learning to adjust for and understand each other the rest 20% of interactions. 

How to Implement the 80-20 Rule – A Step by Step Checklist

• List all your tasks – Make a list of all the tasks that you do on a daily basis. 
• Collate data for analysis ( or apply logic in case of less data) – Gather data on your tasks and use it to analyze how much time and effort you are spending on each task. Also, collate the output that you are getting from each activity. 
• Filter and arrange tasks by results achieved – Now, arrange these tasks in descending order of output. 
• Identify the top 20% activities that yield most output – Pick up the  top 20% activities that are yielding the most results.
• Fit these 20% tasks in your daily routine – Fit these activities into your daily routine and intentionally prioritize them.
• Ruthlessly cut out or outsource other tasks – Cut out or outsource the other tasks. Do not worry, they were anyway not getting you much output. For example, Hire an accountant for filing your taxes, if you think its unnecessary. 

Disadvantages of the Pareto Principle 

Although I stated a lot of advantages of the 80/20 rule, lets also look at some of its disadvantages so you make a balanced choice in your life. 

• Relies on Averages – Any theory that uses averages as the basis neglect the outlier data points, which may show the potential opportunities or threats. The 80/20 rule is no exception. While working on the data for making important calls in work or life, you must also check out the outliers to spot any potential chances of error. 

• Suffers from Rear View Mirror Syndrome – Just like other data analysis exercises that use past data, the 80/20 rule also suffers from Rear View Mirror Syndrome, which means that we look at the past results and try to predict the future. This might not always be accurate. Sometimes you need additional actions reaffirm your findings. So, allocate some time to validate your readings. Perform additional dipstick actions – for example, listen to customer calls, or make a call to a set of customers and confirm the data yourself, before reprioritizing your business efforts.

Basically apply your common sense as a litmus test to any data analysis result. And you should have a great strike rate for correct decisions. 

I hope you liked this article. Have you also observed the 80/20 principle working in your life? Let me know in the comments.