80-20 rule

80-20 Rule and its Implications

80-20 Rule and its Implications.

Recognizing the implications of the 80-20 Rule, also known as the Pareto Principle, can have a profound impact on your business and your life. But why is this? Well, if you apply it to your business or your life, you will quickly see that 20% of your inputs will yield 80% of your outputs or that 20% of your effort will deliver 80% of your results. Applying this rule to your business can stop you from wasting 80% of your time on activities and customers that only generate 20% of your income. It all sounds too simple to really work, right?

Maybe, but first consider the following imbalances, which perhaps exist in your business right now:

  • 20% of products sold in a business typically account for 80% of the revenue
  • 20% of the customers of a business typically generate 80% of the profit
  • 80% of results typically come from 20% of the effort employed
  • 80% of a market will normally be supplied by 20% of the suppliers
  • 80% of the profits made in any industry are made by 20% of firms
  • 80% of the value perceived by customers relates to just 20% of what an organization does
  • You can eliminate 80% of the waste in your business by spending just 20% of what it would cost you to get rid of 100% of the waste

The lessons from this are really important. We tend to assume that equal effort will deliver equal results. 50% of inputs rarely equate to 50% of outputs and linear relationships between inputs and outputs rarely exist. The balance is nearly always skewed towards the 80-20 Rule.

For more information on the 80/20 Principle, I would recommend you read the book on this topic by Richard Koch, available on Amazon.


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