The 80/20 principle for life and business

9 may 2022

In time management theories, Pareto's law is of particular importance. It allows you to use your resources correctly, achieving high results in less time. You can apply this law both in business and in your daily life. Using this principle, you can successfully solve many problems and achieve success.


The concept of Pareto's law

Pareto's law is as follows: 20% of efforts bring 80% of success, and 80% of resources provide the remaining 20% of the result.

This law was discovered more than 100 years ago by Wilfred Pareto, who was engaged in economics and sociology. He lived and worked in Italy. His theory was based on the study of the harvest of the green pea and the financial well-being of the population. He found that 20% of peas make up 80% of the crop, while most of the capital (80%) belongs to only 20% of the population. This ratio of resources and results has been found in other sectors of the economy as well.

The formation of the Pareto theory into law belongs to the American specialist – Joseph Juran. He specialized in quality management in the industrial sector. When the works of the Italian scientist fell into his hands, he added his thoughts to them, after which he formed a law, calling it after Pareto.

Thanks to Pareto's law, Juran significantly reduced waste in production, where he applied the "80 to 20" rule. In addition to him, Richard Koch became interested in the law of redistribution of resources. Having studied this theory, on its basis he published several books that were hugely successful.

In general, the allocation of resources is not always strictly in the 80:20 ratio. Sometimes the indicators may differ, but the general principle remains. To be more efficient at work or in solving day-to-day tasks, it is important to understand which resources will enable you to achieve the greatest success. After that, you need to make an effort to precisely these tasks.



How the principle of resource allocation is implemented

It is important to note that Pareto's Law is not only relevant for business. It can be used even in everyday life for small tasks. This will allow you to organize your affairs and prioritize correctly. The main points of the 80/20 principle are:

  • to achieve most of the result, a smaller part of the resources are more important;
  • most of the effort yields a small share of success;
  • what seems logical at first may not be effective at all;
  • failures are due to several unfavorable factors;
  • 80% of success is achieved by 20% of actions.

If you reflect and carefully analyze everything, you can find confirmation of the operation of the Pareto law in many areas:

  • in the leading countries of the world, the majority of capital belongs to the smallest number of people;
  • 20% of clients provide 80% of the company's income;
  • the main part of sales is carried out at the expense of 20% of products;
  • about 20% of the working population provides for the majority of pensioners;
  • in the field of securities investments, 90% of the profit is made for less than 20% of transactions;
  • the main part of car accidents is committed by 20% of drivers;
  • technical progress provides a small number of inventions (for example, the creation of a wheel and a lever, the invention of an internal combustion engine and the generation of electricity, the creation of computers and the Internet, without which it is now impossible to imagine our life).

As a result, Pareto's law is great for use in work, self-development, relationships, and everyday tasks. Now let's see how this principle can improve your life.


Application of Pareto's law in business

Many studies have confirmed that the bulk of a company's profit comes from a small part of its products. To understand which products are most in demand and will be able to ensure the financial growth of the enterprise, it is necessary to study the assortment, customer demand and sales data for all products. As a result of this analysis, you will be able to determine from 10% to 30% of the most popular products, further focusing on their improvement and production. However, do not forget about the less popular items, they are also needed in your assortment. Although there is less demand for them, if they are bought, they should remain in your catalog. You can remove from sale only the most illiquid goods in order to save your resources and redirect them to the production of popular products.

The 80/20 Principle isn't just about assortment. So the main part of the profit is provided by 20% of the company's regular customers. It is much easier to sell something for active buyers you already know and interact with. Strengthen relationships with your target audience and increase loyalty.

For example, if you have repeat customers who make a high average check or make regular purchases, then spend more resources on retaining them than on attracting new faces. You can be helped by such simple tools as:

You can choose any communication channels and marketing tools to build relationships with your customers, depending on the area of your business, your goals and the portrait of the buyer.


The 80/20 principle in working with subordinates

Each employee has a different attitude to his duties. Part of the team performs its tasks responsibly, efficiently, making every effort, while the other part is only present at the enterprise, creating the appearance of work. To properly allocate resources, study the KPIs of each subordinate. Also, talk with department heads, managers, and observe the work of all subordinates.

All employees require different working conditions. While someone may be over-performing tasks, for others this approach leads to burnout, stress, and decreased productivity. In general, each employee must complete 80% of the tasks for the overall result to be high.

To improve the quality of the team's work, use several recommendations:

  • introduce a motivation system for subordinates;
  • pay bonuses and premiums for achieving certain results;
  • introduce additional incentives;
  • use time management;
  • use fines for major violations and missed deadlines;
  • fire unscrupulous employees who harm your company.


Using Pareto's law in advertising

Most of the advertising does not bring results to the business. For an advertising campaign to be successful, it is necessary to collect information about the target audience and analyze statistics. For example, if according to the data in several regions there is no interest in your product, it is better to opt out of advertising in those regions. It is better to invest the saved funds in the promotion of goods/services in regions where there is a demand for them.

The audience is active at different times of the day. Study user activity and determine the best hours when people can scrutinize your ad as closely as possible. At this time, you will be able to launch a campaign and reach most of your target audience.

Explore various advertising channels. You can find your audience on such sites:

  • Instagram;
  • Facebook;
  • YouTube;
  • LinkedIn;
  • TikTok;
  • website.

If you are promoting all of these sites at the same time, you are using your resources irrationally. In some social networks, your potential buyers may be many, while in others – there are almost none. With this approach, you spend a lot of effort, and you get little results. In this case, you need to focus on those channels and sites where most of your target audience is. Then your ad budget will pay off and deliver more results.

It is important to consider that the advancement of social networks is not happening as fast as expected. It is important here to regularly create content, surprise subscribers, engage them, and constantly maintain interest. To increase profits, prioritize correctly and pay attention to the channels that will bring you the most profit.

To promote websites and social networks, you can use the following tools:

  • contextual advertising;
  • work with opinion leaders;
  • SEO optimization;
  • targeted advertising.

Analyze the effectiveness of these tools to understand what benefits you the most and what brings you customers and sales. Put your finances on effective promotion paths.


Benefits of the 80/20 principle for personal budgeting

Analyze your income and expenses for the current year. In most cases, you will find a lot of unnecessary costs in this report. These can be emotional and unplanned purchases. For example, suppose you bought a new model of smartphone, succumbing to advertising, although your old phone is still working well. Also, many people spend part of their salary on tasty but unhealthy food and alcohol, bypassing the shelves with healthy products in the supermarket.

If you revise your budget, reduce spontaneous purchases, replace some positions with more profitable, useful ones, then you can save more money and improve your quality of life. A lot of people do not even suspect that we do not really need most of the purchases we make.

Analyze your expenses using Pareto's law. Make a general list of expenses, identify key items, highlight those items that can be excluded or significantly reduced. When you have free money, save it for investments and large purchases. Of course, sometimes you want to please yourself with a little thing, to do something pleasant for yourself, but spontaneous spending should not become a habit. Let a small amount of money be allocated for such small expenses, but you should not go beyond these limits.


Using Pareto's law in time scheduling

Time management problems are encountered both by office workers and those who work remotely. Sometimes employees are distracted by personal affairs, sometimes companies have internal bureaucracy.

To improve your work efficiency, allocate 20% of the important tasks and spend the effort to get them done. It is best to start with challenging tasks. Spend the rest of the time with secondary matters.

The same principle can be applied to personal time planning. It is important to determine what time of day you are most productive: some people are better able to work in the morning, others during the day, and still others in the evening and even at night. Do most of your activities during your peak hours. Then you will be able to successfully complete your tasks, build the most convenient daily routine for you, and build a comfortable work and leisure schedule.


The 80/20 rule in self-development

Some people take on several things at the same time, but do not succeed in any direction. If this is your situation, focus your efforts on only 2-3 areas that will allow you to achieve good results. If you engage in self-development in only 1 direction, your success will be even higher. When choosing a field of activity, analyze your inclinations, pros and cons.

For example, if there are tasks that you are not doing very well and there is an opportunity to delegate them to a professional, then entrust him with this work. Use the free time for your development.

When choosing a new educational course, study it, compare with similar products, read alumni reviews, and view the program. Some platforms have introductory lessons and a test mode. Take this opportunity to see if this course is right for you, if you like the information, the presentation, and if you can complete the assignments in the program. This will save you money and time spent on training. All the same, you won't be able to read all the books and complete all the developmental trainings.



Disadvantages of Pareto's law

Pareto's Law helps to increase business efficiency, increases productivity, allows for the right use of time and prioritization. However, it is not universal. You need to analyze your field of activity and understand how to properly implement the 80/20 principle.

Some people misunderstand the principle of resource allocation. So, if 20% of the goods are the most profitable, this does not mean that 80% of the products are superfluous. At the very least, this part of the products enriches your assortment and allows customers to make a choice. They will not always buy items from that 20%. Overall, 80% of products help sell 20% of the most in-demand products.

Pareto's law cannot be applied in areas where it is difficult to determine what kind of effort is needed to achieve goals. For example, in medicine, it is necessary to make as much effort as possible to save lives and the health of people.

The main disadvantage of the 80-20 principle is that it cannot provide long-term balance. So, if you remove from the assortment all products that are unnecessary at first glance, then the demand for some popular items will fall. Cutting off 80% of unnecessary products and leaving only 20% to achieve 100% sales success is impossible. This is due to the fact that by reducing the assortment, you deprive customers of choice.

To be successful, focus 80% on effective destinations and in-demand products (20%), while devoting a little time to less popular products. It will help you increase sales of popular products.


Benefits of the 80/20 principle

Pareto's law demonstrates the dependence of your success in any endeavor on the effort and the right priorities. The application of this law is relevant both in work and in everyday life, and in training.

If you want to understand what products and services bring you the most profit, you want to analyze the KPIs of your employees and set them tasks that will bring the best results, then use the CRM program – Gincore. This software will help you automate work, keep records, control finances, analyze advertising. Gincore also integrates with many tools such as Google Analytics, IP telephony, Telegram, SMS and mail. Click "Try for free", register on the site and increase the profit of your business in the near future.


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