As a small business owner, it’s critical to pinpoint the areas that will increase your reve-nue and profits. The easiest way to define that sweet spot is by following the Pareto Principle.
Developed by Italian economist and sociologist Vilfredo Pareto, his original observation was in connection with income and wealth. Pareto noticed that 80% of Italy’s wealth was owned by 20% of the population.
The Pareto Principle, more commonly known as the 80/20 Rule, states that 80% of our results come from 20% of our activity. The outcome to this is that 20% of our results ab-sorb 80% of one’s resources or activity.
The 80/20 rule teaches simplicity and applies to several examples:
20% of employees are responsible for 80% of a company’s output
20% of customers are responsible for 80% of the revenues
80% of your daily interruptions come from the same 20% of people
80% of your personal calls are to 20% of the people in your address book
80% of your annual sales come from 20% of your sales force
80% of what you produce is generated during 20% of your working hours
80% of your website traffic comes from 20% of your pages
Your job is to find out which 20% of your marketing is motivating the most sales, to de-termine which 20% of your customers are producing 80% of your profits, and to learn which 20% of your prospects are most likely to become customers.
The value of the 80/20 principle for a business owner is that it reminds you to focus on the 20% that matters. Think about it; of the things you do during your day, only 20% re-ally matters… and 20% of your customers really matter.
When you discover which 20% of your customers are responsible for 80% of your sales, your marketing and communication will focus on keeping them happy, increasing the amount of business you do with them, and tapping them for referrals and testimonials. Paying more attention to this 20% reduces your marketing budget because you can pay less attention to the 80% who account for only 20% of your profits.
Now, consider applying the 80/20 principle to your life. For example, do you spend more time with people you enjoy being around? Do you try focusing on a few habits that can bring huge value to your life? Do you identify goals and priorities on a daily basis so you can focus on what matters most in business and in life?
No matter how big or small, start writing and assessing your dreams and goals in rela-tion to the 80/20 Rule. Can you identify which 20% of your goals, when achieved, will give you 80% of your satisfaction and happiness?
Now step back and assess the ‘More with Less’ path. There are typically 4 routes to achieve a certain objective: the ‘Low Effort, Low Reward’ route, ‘High Effort, Low Re-ward’, ‘High Effort, High Reward’, and ‘Low Effort, High Reward’. It doesn’t take an Einstein to realize that focusing on the ‘Low Effort, High Reward’ route brings the greatest return on time, energy and investment.
Don’t wait another day to evaluate and apply the 80/20 rule to work and life. The first step is easy. Get a pad of paper and a pen and start writing! Create two columns; one entitled “20” and the other entitled “80.”
In the “20” column, put everything you must do. If you have commitments that must be met, or responsibilities that cannot be put off, put those items in this column.
In the “80” column, jot down items that give you low rewards, or tasks you find useless and/or tedious. Remember, the key here is to always ask yourself: “What is truly important to me?”
By putting the Pareto Principle into effect in business and life, you will do less and achieve more, and you’ll feel a whole lot more energy and passion as you focus on what matters most.